United States General Accounting Office 

GAO Report to Congressional Requesters 

September 2003 COMBATING MONEY 

LAUNDERING 

Opportunities Exist to 

Improve the National 

Strategy 

GAO-03-813 

Highlights of GAO-03-813, a report to 

congressional requesters 

Money laundering is a serious 

crime, with hundreds of billions of 

dollars laundered annually. 

Congress passed the Money 

Laundering and Financial Crimes 

Strategy Act of 1998 to better 

coordinate the efforts of law 

enforcement agencies and financial 

regulators in combating money 

laundering. This act required the 

issuance of an annual National 

Money Laundering Strategy for 5 

years, ending with the issuance of 

the 2003 strategy. To help with 

deliberations on reauthorization, as 

agreed with your offices, GAO 

determined (1) agency perspectives 

on the benefit of the strategy and 

factors that affected its 

development and implementation, 

(2) whether the strategy has served 

as a useful mechanism for guiding 

the coordination of federal law 

enforcement agencies’ efforts, (3) 

the role of the strategy in 

influencing the activities of federal 

financial regulators, and (4) 

whether the strategy has reflected 

key critical components. 

GAO recommends that, if the 

requirement for a national strategy 

is reauthorized, the Secretaries of 

the Treasury and Homeland 

Security and the Attorney General 

strengthen the leadership structure 

for strategy development and 

implementation, require processes 

to ensure key priorities are 

identified, and establish 

accountability mechanisms. The 

departments generally concurred 

with GAO’s report. 

www.gao.gov/cgi-bin/getrpt?GAO-03-813. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Rich Stana at 

(202) 512-8777 or Davi D'Agostino at (202) 

512-8678. 

September 2003 

COMBATING MONEY LAUNDERING 

Opportunities Exist to Improve the 

National Strategy 

Treasury, Justice, and financial regulatory officials with whom GAO spoke 

said that the National Money Laundering Strategy was initially beneficial but 

that, over time, certain factors and events affected its development and 

implementation. They endorsed the concept of a strategy to coordinate the 

federal government’s efforts to combat money laundering and related 

financial crimes. They also said that the strategy initially had a positive effect 

on promoting interagency planning and communication, but different agency 

views emerged over the scope and commitment required, and other events 

affected the strategy, such as the September 11 terrorist attacks and the 

creation of the Department of Homeland Security. 

The strategy generally has not served as a useful mechanism for guiding the 

coordination of federal law enforcement agencies’ efforts to combat money 

laundering and terrorist financing. While Treasury and Justice made 

progress on some strategy initiatives designed to enhance interagency 

coordination of money laundering investigations, most have not achieved the 

expectations called for in the annual strategies. Also, the 2002 strategy did 

not address agency roles in investigating terrorist financing, thus, it did not 

help resolve potential duplication of efforts and disagreements over which 

agency should lead investigations. In May 2003, Justice and Homeland 

Security reached an agreement aimed at resolving these problems. 

Most financial regulators GAO interviewed said that the strategy had some 

influence on their anti-money laundering efforts because it provided a forum 

for enhanced coordination, particularly with law enforcement agencies. 

However, they said that it has had less influence than other factors. They 

described several other influences on their efforts, particularly their ongoing 

oversight responsibilities in ensuring compliance with the Bank Secrecy Act 

and, more recently, the USA PATRIOT Act, which was passed in October 

2001 to fight terrorist financing and increase anti-money laundering efforts. 

GAO’s work reviewing national strategies has identified several critical 

components needed for development and implementation; however, key 

components have not been well reflected in the strategy. The first is clearly 

defined leadership, with the ability to marshal necessary resources. 

However, the leadership for the strategy has not agreed on the strategy’s 

scope or ensured that target dates for completing initiatives were met. The 

second is clear priorities, as identified by threat and risk assessments, to 

help focus resources on the greatest needs. Each strategy contained more 

priorities than could be realistically achieved and none of the strategies was 

linked to a threat and risk assessment. The third is that established 

accountability mechanisms provide a basis for monitoring and assessing 

program performance. While later strategies contained several initiatives 

designed to establish performance measures, as of July 2003, none had yet 

been completed. Officials attributed this to the difficulty in establishing such 

measures for combating money laundering. 
Contents 


Letter 


Results in Brief 


Background


Early Benefit of the NMLS Was Affected by Certain Factors and 


Events 


NMLS Generally Has Not Been as Useful as Envisioned for Guiding 


the Coordination of Law Enforcement Efforts 


NMLS Has Had Some Influence on Financial Regulators’ Efforts, 


but Other Factors Played a Larger Role 


The Annual NMLS Has Not Reflected Critical Components 


Identified by GAO as Key to Developing and Implementing 


National Strategies


Conclusions 


Recommendations for Executive Action 


Agency Comments and Our Evaluation


1 

4 

7 

15 

16 

31 

37 

46 

47 

47 

Appendix I Scope and Methodology 

Appendix II 	 Legislation Has Expanded the Responsibility to 

Combat Money Laundering 

Appendix III	 Summary of Key Anti-Money Laundering Provisions 

in Title III of the USA PATRIOT Act and Rules 

Appendix IV Comments from the Department of the Treasury 

Appendix V Comments from the Department of Justice 68 


Appendix VI 	 Comments from the Department of Homeland 


Security 70 


Page i GAO-03-813 Combating Money Laundering 

51 

53 

57 

66 
Appendix VII GAO Contacts and Staff Acknowledgments 74 

GAO Contacts 74 

Acknowledgments 74 

Related GAO Products 

Tables 

Table 1: NMLS Goals, Objectives, and Priorities, 1999 through 2002


Table 2: Status of HIFCA Task Forces as of May 2003


Table 3: Status of NMLS Initiatives Related to HIFCA Oversight 


Table 4: NMLS Initiatives to Review Bank Examination Procedures, 


as of July 2003 

Table 5: Annual NMLS—Dates Submitted to Congress 

Table 6: Status of 2002 NMLS Initiatives Designed to Measure 

Performance 

13 

18 

22 

36 

38 

43 

Figures 

Figure 1: The Three Stages of Money Laundering 8 

Figure 2: Principal Agencies Responsible for NMLS before the 

Creation of DHS 10 

Figure 3: Principal Agencies Responsible for NMLS after the 

Creation of DHS 11 

Page ii GAO-03-813 Combating Money Laundering 

75 
Abbreviations 

AFMLS Asset Forfeiture and Money Laundering Section


BSA Bank Secrecy Act 


CFTC Commodity Futures Trading Commission 


DEA Drug Enforcement Administration 


DHS Department of Homeland Security 


EOUSA Executive Office for U.S. Attorneys 


FBI Federal Bureau of Investigation 


FDIC Federal Deposit Insurance Corporation 


FinCEN Financial Crimes Enforcement Network 


FRB Federal Reserve Board 


HIFCA High Intensity Money Laundering and Related 


Financial Crime Area 

ICE Bureau of Immigration and Customs Enforcement 

IRS-CI Internal Revenue Service-Criminal Investigation 

JTTF Joint Terrorism Task Force 

MLCA Money Laundering Control Act of 1986 

NCUA National Credit Union Administration 

NMLS National Money Laundering Strategy 

OCC Office of the Comptroller of the Currency 

OGQ Operation Green Quest 

OTS Office of Thrift Supervision 

SAR Suspicious Activity Report 

SEC Securities and Exchange Commission 

TFOS Terrorist Financing Operations Section 

USA PATRIOT Act Uniting and Strengthening America by Providing 

Appropriate Tools Required to Intercept and 

Obstruct Terrorism Act of 2001 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page iii GAO-03-813 Combating Money Laundering 
United States General Accounting Office 

Washington, DC 20548 

September 26, 2003 


The Honorable Charles E. Grassley 


Chairman, Caucus on International Narcotics Control 


United States Senate 


The Honorable Carl Levin 


Ranking Minority Member 


Permanent Subcommittee on Investigations 


Committee on Governmental Affairs 


United States Senate 


Money laundering—the process of disguising or concealing illicit funds to 


make them appear legitimate—is a serious issue, with an estimated 


$500 billion to $1 trillion laundered worldwide annually, according to the 


United Nations Office of Drug Control and Prevention. Money laundering


provides the fuel for drug dealers, arms traffickers, terrorists, and other 


criminals to operate and expand their activities, which can have


devastating social and economic consequences. 


Although the U.S. government had been working to combat money 


laundering for many years, efforts by law enforcement and regulatory 


agencies took on particular urgency, as the operations of large-scale 


criminal organizations grew increasingly sophisticated. To better 


coordinate the anti-money laundering efforts of federal, state, and local 


law enforcement agencies and financial regulators, Congress enacted the


Money Laundering and Financial Crimes Strategy Act of 1998 (Strategy 


Act).1

 This act called for the annual issuance of a strategy to combat 


money laundering—the National Money Laundering Strategy (NMLS). This 


requirement will end with the issuance of the 2003 strategy unless 


reauthorized by Congress. In anticipation of reauthorization discussions, 


Congress is interested in knowing how the strategy has affected 


coordination and whether improvements could be made to increase its 


benefits. 


1

Pub. L. 105-310, 112 Stat. 2941 codified as 31 U.S.C. §§ 5340-42, 5351-55 (1998). 

Page 1 GAO-03-813 Combating Money Laundering 
While money laundering first became a federal crime in 1986 with the 

passage of the Money Laundering Control Act,2

 law enforcement and the 

federal financial regulators had sought to protect the U.S. financial system 

from certain types of criminal activity since the passage of the Bank 

Secrecy Act (BSA) in 1970, which instituted currency reporting 

requirements.3

 By periodically amending the BSA, Congress has added 

anti-money laundering requirements for many types of financial 

institutions and transactions. Such amendments and the resulting 

regulations have increased the number of federal agencies with 

responsibility for ensuring compliance with anti-money laundering 

requirements, thereby creating a need to coordinate the efforts of 

numerous financial regulatory and law enforcement agencies. Appendix II 

describes major anti-money laundering legislation since 1970. 

The Strategy Act requires the President—acting through the Secretary of 

the Treasury and in consultation with the Attorney General and other 

relevant federal, state, and local law enforcement and regulatory 

officials—to develop and submit the annual NMLS to Congress by 

February 1 of each year from 1999 through 2003. The goal of the Strategy 

Act is to increase coordination and cooperation among the various 

regulatory and enforcement agencies and to effectively distribute 

resources to combat money laundering. The Strategy Act requires the 

NMLS to define comprehensive, research-based goals, objectives, and 

priorities for reducing money laundering and related financial crime in the 

United States. The NMLS has generally included multiple priorities to 

combat money laundering to guide federal agencies’ activities. 

Additionally, the Strategy Act authorizes the Secretary of the Treasury to 

designate High Intensity Money Laundering and Related Financial Crime 

Areas (HIFCA), in which federal, state, and local law enforcement would 

work cooperatively to develop a focused and comprehensive approach to 

targeting money laundering activity.4 

In the wake of the September 11, 2001, terrorist attacks, Congress passed 

the Uniting and Strengthening America by Providing Appropriate Tools 

2

18 U.S.C. § 1956-57 (1994). 

3

Currency and Foreign Transactions Reporting Act (commonly referred to as the Bank 

Secrecy Act), Pub. L. No. 91-508, 84 Stat. 1114 (1970) (codified as amended in 12 U.S.C. §§ 

1829(b), 1951-1959; 31 U.S.C. §§ 5311-5330. 4

Such an “area” could be a geographic area, financial system, industry sector, or financial 

institution. 

Page 2 GAO-03-813 Combating Money Laundering 
Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT 

Act) to, among other things, both fight terrorist financing and increase 

anti-money laundering efforts through further expansion of the types of 

financial institutions and transactions that are subject to anti-money 

laundering record keeping and reporting requirements.5

 The NMLS has 

also changed to reflect new federal priorities in the aftermath of 

September 11, 2001, including a goal to combat terrorist financing in 2002. 

To assist in congressional deliberations on whether there is a continuing 

need for an annual NMLS, this report discusses the results of our review of 

the development and implementation of the 1999 through 2002 strategies. 

Specifically, as agreed with your offices, our objectives were to determine 

(1) agency perspectives on the benefit of the NMLS and factors that 

affected its development and implementation, (2) whether the strategy has 

served as a useful mechanism for guiding the coordination of federal law 

enforcement agencies’ efforts to combat money laundering and terrorist 

financing, (3) the role of the NMLS in influencing the anti-money 

laundering and antiterrorist financing activities of the federal financial 

regulators, and (4) whether the NMLS has reflected the critical 

components we have found to be necessary for the development and 

implementation of such a strategy. 

To determine agency perspectives on the benefit of the NMLS, we 

interviewed responsible officials at and reviewed relevant documentation 

obtained from the principal law enforcement components with anti-money 

laundering responsibilities at the Departments of the Treasury, Justice, 

and Homeland Security and the federal financial regulatory agencies.6

 In 

general, our work reviewing the strategy’s usefulness for guiding the 

coordination of law enforcement agencies’ efforts consisted of 

(1) examining the structure and operation of HIFCA task forces, 

(2) analyzing the implementation of NMLS initiatives to enhance 

interagency coordination, and (3) assessing the extent to which the 2002 

NMLS addressed agency roles in combating terrorist financing. We did this 

by interviewing relevant agency officials, reviewing agency policies for 

5

The anti-money laundering provisions are contained in Title III of the USA PATRIOT Act, 

Pub. L. No. 107-56, 115 Stat. 272 (2001). 

6

The federal financial regulators include the Federal Reserve Board, Federal Deposit 

Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift 

Supervision, the National Credit Union Administration, the Securities and Exchange 

Commission, and the Commodity Futures Trading Commission. 

Page 3 GAO-03-813 Combating Money Laundering 
coordination, evaluating staffing levels and other resources devoted to 

NMLS initiatives, and reviewing the NMLS. Our work determining the role 

of the NMLS in influencing the efforts of the federal financial regulators 

focused primarily on the NMLS goal that sought to coordinate their efforts. 

In 2002, the goal was, “Prevent Money Laundering Through Cooperative 

Public-Private Efforts and Necessary Regulatory Measures.” This goal had 

similar titles in earlier strategies (see table 1). We also examined the role 

the financial regulators played in supporting Treasury’s efforts under the 

NMLS goal to strengthen international cooperation to fight money 

laundering. To do this, we interviewed financial regulatory, Treasury, and 

law enforcement agency officials. We also reviewed regulatory 

examination guidelines, policies, and training information. To determine 

whether the NMLS reflected components we have found necessary for 

national strategies, we reviewed drafts of the strategies from 1999 to 

2002, interviewed officials that had been involved in the development and 

implementation of the strategies, and compared the results from this work 

with findings from our past work reviewing national strategies and their 

implementation. 

We conducted our work from June 2002 to August 2003 in accordance 

with generally accepted government auditing standards. Additional 

information on our scope and methodology is discussed in appendix I. 

Results in Brief 
 The Treasury, Justice, and financial regulatory agency officials we 

interviewed generally agreed that the NMLS was initially beneficial but 

that, over time, certain factors and events affected its development and 

implementation. The officials endorsed the concept of a strategy to 

coordinate the federal government’s efforts to combat money laundering 

and related financial crimes. Generally, the officials commented that the 

annual NMLS probably was more beneficial in the first 2 years (1999 and 

2000) than in the subsequent years (2001 and 2002). For example, Treasury 

officials said that the NMLS was initially instrumental in focusing on the 

need to combat money laundering systemically and not solely on a caseby-case basis. However, different agency views emerged about the 

appropriate scope of the NMLS and the level of agency commitment to the 

strategy that was required. Thus, the officials said the strategy did not 

reach its potential for integrating and harmonizing the nation’s efforts to 

combat money laundering and related financial crimes. In addition, other 

events affected or delayed the strategy’s implementation. For example, 

changes in the administration and senior agency officials led to major 

revisions to the NMLS in 2001 and 2002. In addition, the 2001 strategy was 

issued on September 12, 2001. Subsequent to the attacks of September 11, 

Page 4 GAO-03-813 Combating Money Laundering 
the government’s focus changed to terrorist financing, making money 

laundering less of a priority. More recently, the 2003 strategy was delayed, 

in part, because the creation of the Department of Homeland Security 

(DHS) brought a new player into the mix with the transfer of Treasury’s 

enforcement functions and staff to the new department. 

As a mechanism for guiding the coordination of federal law enforcement 

agencies’ efforts to combat money laundering and related financial crimes, 

the NMLS has had mixed results but generally has not been as useful as 

envisioned by the Strategy Act. For example, although expected to have a 

central role in coordinating law enforcement agencies’ efforts to combat 

money laundering, HIFCA task forces generally had not yet been 

structured and operating as intended and had not reached their 

expectations for leveraging investigative resources or creating 

investigative synergies. In some cases, federal law enforcement agencies 

had not provided the levels of commitment and staffing to the task forces 

called for by the strategy. Further, while Treasury and Justice made 

progress on some NMLS initiatives designed to enhance interagency 

coordination of money laundering investigations, most had not achieved 

the expectations called for in the annual strategies, including plans to 

(1) use a centralized system to coordinate investigations and (2) develop 

uniform guidelines for undercover investigations. Headquarters officials 

cited differences in the various agencies’ anti-money laundering priorities 

as a primary reason why initiatives had not achieved their expectations. 

Moreover, due to difficulties in reaching agreement over which agency 

should lead investigations, the 2002 NMLS did not address agency and task 

force roles and interagency coordination procedures for investigating 

terrorist financing. Law enforcement officials told us that the lack of 

clearly defined roles and coordination procedures contributed to 

duplication of efforts and disagreements over which agency should lead 

investigations. To help resolve these long-standing jurisdictional issues, in 

May 2003, the Attorney General and the Secretary of Homeland Security 

signed a memorandum of agreement regarding roles and responsibilities in 

investigating terrorist financing. It is too soon to determine whether the 

agreement will be successful in resolving these issues. 

Most financial regulators we interviewed said that the NMLS had some 

influence on their anti-money laundering efforts because it provided a 

forum for enhanced coordination, particularly with law enforcement 

agencies. Law enforcement agency officials said the level of coordination 

between their agencies and the financial regulators was good. However, 

the financial regulators also said that other factors had more influence on 

them than the strategy. For example, the financial regulators cited their 

Page 5 GAO-03-813 Combating Money Laundering 
ongoing oversight responsibilities in ensuring compliance with the BSA as 

a primary influence on them. Another influence has been anti-money 

laundering working groups, some of which were initiated by the financial 

regulators or law enforcement agencies prior to enactment of the Strategy 

Act. The officials said that the U.S. government’s reaction to September 11, 

which included a change in government perspective and new regulatory 

requirements placed on financial institutions by the USA PATRIOT Act, 

has driven their recent anti-money laundering and antiterrorist financing 

efforts. Although the financial regulators said that the NMLS had less 

influence on their anti-money laundering activities than other factors, they 

have completed the tasks for which the NMLS designated them as lead 

agencies over the years, as well as most of the tasks for which they were 

to provide support to Treasury. 

In recent years, our work in reviewing national strategies for various 

crosscutting issues has identified several critical components needed for 

their development and implementation, including effective leadership, 

clear priorities, and accountability mechanisms.7

 For a variety of reasons, 

these critical components generally have not been fully reflected in the 

development and implementation of the annual NMLS. For example, the 

joint Treasury-Justice leadership structure that was established to oversee 

NMLS-related activities generally has not resulted in (1) reaching 

agreement on the appropriate scope of the strategy; (2) ensuring that 

target dates for completing strategy initiatives were met; and (3) issuing 

the annual NMLS by February 1 of each year, as required by the Strategy 

Act. Although Treasury generally took the lead role in strategy-related 

activities, the department had no incentives or authority to get other 

departments and agencies to provide necessary resources and 

participation. Also, the annual strategies have not identified and prioritized 

issues that required the most immediate attention. Each strategy has 

contained more priorities than could be realistically achieved, the 

priorities have not been ranked in order of importance, and no priority has 

been explicitly linked to a threat and risk assessment. Further, although 

the 2001 and 2002 strategies contained initiatives to measure program 

performance, none had been used to ensure accountability for results. 

Officials attributed this to the difficulty in establishing such measures for 

combating money laundering. In addition, Treasury has not provided 

annual reports to Congress on the effectiveness of policies to combat 

7

GAO continues to develop critical success factors for evaluating national strategies and 

will report on this work later this year. 

Page 6 GAO-03-813 Combating Money Laundering 
money laundering and related financial crimes, as required by the Strategy 

Act. 

If Congress reauthorizes the requirement for an annual NMLS, this report 

provides recommendations for the Secretary of the Treasury, working 

with the Attorney General and the Secretary of Homeland Security, to 

(1) strengthen the leadership structure responsible for strategy 

development and implementation, (2) ensure that clear priorities are 

identified, and (3) establish accountability mechanisms, so that the NMLS 

better meets its interagency coordination and cooperation expectations. 

In commenting on a draft of this report, Treasury said that our 

recommendations are important, should Congress reauthorize the 

legislation requiring future strategies; Justice said that our observations 

and conclusions will be helpful in assessing the role that the strategy 

process has played in the federal government’s efforts to combat money 

laundering; and DHS said that it agreed with our recommendations. The 

seven federal financial regulatory agencies did not address our 

recommendations, although the Federal Deposit Insurance Corporation 

(FDIC) noted that should a national money laundering strategy continue, 

annual goals should be achievable and roles and responsibilities clearly 

defined. The National Security Council did not respond to our request for 

comments. 

Money laundering is the process used to transform monetary proceeds 

derived from criminal activities into funds and assets that appear to have 

come from legitimate sources. Although the magnitude of global money 

laundering is unknown, many estimates suggest annual ranges in the 

hundreds of billions of dollars. The process of money laundering generally 

takes place in three stages: placement, layering, and integration. In the 

placement stage, cash is converted into monetary instruments, such as 

money orders or traveler’s checks, or deposited into financial institution 

accounts. In the layering stage, these funds are transferred or moved into 

other accounts or other financial institutions to further obscure their illicit 

origin. In the integration stage, the funds are used to purchase assets in the 

legitimate economy or to fund further activities. All financial sectors and 

certain commercial businesses can be targeted during one or more of 

these stages. Many of these entities are required to report transactions 

with certain characteristics to law enforcement if they appear to be 

potentially suspicious. The transactions would generally fall within either 

the placement or layering stage if they proved to be involved in money 

Background 

Page 7 GAO-03-813 Combating Money Laundering 
laundering. Transaction reporting requirements are discussed further later 

in this report. Figure 1 shows the three stages of money laundering. 

Figure 1: The Three Stages of Money Laundering 

Illicit activity 

1 - Placement 

$ Pay to the 

Order of 

2 - Layering 

3 - Integration 

Cash is generated by 

drug trafficking, fraud, 

and so forth. 

Cash is converted to 

monetary instruments or is 

deposited into financial 

institution accounts. 

Bank of Anytown 

Funds are moved through wire transfers, 

checks, money orders, and so forth. 

Funds are moved through wire transfers, 

checks, money orders, and so forth. 

Funds are moved to other 

financial institutions to 

obscure origins. 

Funds are used to acquire 

legitimate assets or fund 

further activities. 

Stages 

Source: Financial Crimes Enforcement Network, FinCEN Related Series: 

An Assessment of Narcotics Related Money Laundering, July 1992. 

Terrorist financing is generally characterized by different motives than 

money laundering and the funds involved often originate from legitimate 

sources. However, the techniques for hiding the movement of funds 

intended to be used to finance terrorist activity—techniques to obscure 

Page 8 GAO-03-813 Combating Money Laundering 
the origin of funds and the ultimate destination—are often similar to those 

used to launder money. Therefore, Treasury, law enforcement agencies, 

and the federal financial regulators often employ similar approaches and 

techniques in trying to detect and prevent both money laundering and 

terrorist financing. 

Many Agencies Are 

Responsible for Combating 

Money Laundering and 

Terrorist Financing 

Agencies under the Departments of the Treasury, Justice, and Homeland 

Security are to coordinate with each other and with financial regulators in 

combating money laundering. Within Treasury, the Financial Crimes 

Enforcement Network (FinCEN) was established in 1990 to support law 

enforcement agencies by collecting, analyzing, and coordinating financial 

intelligence information to combat money laundering. In addition to 

FinCEN, Treasury components actively involved in anti-money laundering 

and antiterrorist financing efforts include the Executive Office for 

Terrorist Financing and Financial Crimes, the Office of International 

Affairs, and the Internal Revenue Service and its Criminal Investigation 

unit (IRS-CI).8 

Department of Justice components involved in efforts to combat money 

laundering and terrorist financing include the Criminal Division’s Asset 

Forfeiture and Money Laundering Section (AFMLS) and Counterterrorism 

Section, the Federal Bureau of Investigation (FBI), the Drug Enforcement 

Administration (DEA), and the Executive Office for U.S. Attorneys 

(EOUSA) and U.S. Attorneys Offices.9

 With the creation of DHS in March 

2003, anti-money laundering activities of the Customs Service were 

transferred from Treasury to DHS’s Bureau of Immigration and Customs 

Enforcement (ICE). 

The financial regulators who oversee financial institutions’ anti-money 

laundering efforts include the depository institution financial regulators— 

the Federal Reserve Board (FRB), FDIC, Office of the Comptroller of the 

Currency (OCC), Office of Thrift Supervision (OTS), and the National 

Credit Union Administration (NCUA)—and also the Securities and 

8

Among other duties, Treasury’s Executive Office for Terrorist Financing and Financial 

Crimes is charged with developing and implementing the NMLS and U.S. government 

strategies to combat terrorist financing. These duties were previously conducted by 

Treasury’s Office of Enforcement, which was disbanded in March 2003. 

9

Justice’s Asset Forfeiture and Money Laundering Section (AFMLS) is the department’s 

focal point for NMLS issues. 

Page 9 GAO-03-813 Combating Money Laundering 
Exchange Commission (SEC), which regulates the securities markets, and 

the Commodity Futures Trading Commission (CFTC), which regulates 

commodity futures and options markets. While OCC and OTS are bureaus 

within Treasury, the FRB, FDIC, NCUA, SEC, and CFTC are independent 

agencies that are not part of the executive branch. Figure 2 shows the 

primary agencies responsible for combating money laundering and 

terrorist financing before the creation of DHS. Figure 3 shows the primary 

agencies responsible for combating money laundering and terrorist 

financing after the creation of DHS. 

Figure 2: Principal Agencies Responsible for NMLS before the Creation of DHS 

Department of 

the Treasury 

Financial regulators 

FRB FDIC OCC

SEC NCUA OTS

CFTC 

FinCEN Customs 

IRS FBI DEA 

U.S. 

Attorneys 

Offices 

Office of 

Enforcement 

Department 

of Justice 

EOUSA AFMLS 

Office of 

International 

Affairs 

Counterterrorism 

Section 

Source: GAO. 

Page 10 GAO-03-813 Combating Money Laundering 
Figure 3: Principal Agencies Responsible for NMLS after the Creation of DHS 

Department 

of Justice 

Department of 

the Treasury 

FinCEN 

ICE EOUSA AFMLS FBI DEA 

Department of 

Homeland Security 

Financial regulators 

FRB FDIC OCC

SEC NCUA OTS

CFTC 

U.S. 

Attorneys 

Offices 

IRS 

Executive Office 

for Terrorist 

Financing and 

Financial Crimes 

Office of 

International 

Affairs 

Counterterrorism 

Section 

Source: GAO. 

NMLS Was Intended to 

Coordinate the U.S. 

Government’s Anti-Money 

Laundering Efforts 

Given law enforcement’s mixed history of both productive partnerships 

and turf-protection battles, proponents of the Strategy Act envisioned that 

the implementation of an annual NMLS would inaugurate a new level of 

coordination and cooperation between law enforcement agencies. The 

NMLS also sought to coordinate the efforts of law enforcement agencies 

and financial regulators to ensure that financial institutions were 

sufficiently vigilant to detect possible money laundering and that they 

reported any suspicious activity to law enforcement agencies to assist in 

their efforts to investigate money laundering and, more recently, terrorist 

financing. 

The process for developing the NMLS has varied slightly from year to year, 

but it has generally involved Treasury working with other agencies to 

develop a draft. Treasury officials said that they have sometimes asked 

officials from other agencies to take the lead in drafting certain sections 

that pertain particularly to their efforts. In other instances, Treasury has 

drafted the sections and asked for participating agencies’ review and 

comments on the sections relevant to them. Upon completion of the draft 

NMLS, the relevant agencies are given the opportunity to clear the final 

document through the Office of Management and Budget’s clearance 

process, which requires that the agencies approve the document, that is, 

signify their agreement with its contents. Treasury officials told us that by 

approving the NMLS through this process, the agencies have agreed to it 

and should be held accountable to Congress and the public to complete 

their assigned responsibilities. 

Page 11 GAO-03-813 Combating Money Laundering 
The drafting process has generally resulted in a document that lists four to 

six broad goals, each containing objectives, which in turn contain a list of 

priorities. Over time, the goals have changed, sometimes in their wording 

or order, and other times to cover new threats. For example, in the wake 

of September 11, the 2002 NMLS added the goal, “Focus Law Enforcement 

and Regulatory Resources on Identifying, Disrupting, and Dismantling 

Terrorist Financing Networks.” As of September 24, the 2003 NMLS had 

not yet been issued. Table 1 shows the NMLS goals from 1999 through 

2002 and the number of objectives and priorities. 

Page 12 GAO-03-813 Combating Money Laundering 
Table 1: NMLS Goals, Objectives, and Priorities, 1999 through 2002 

NMLS year NMLS goals Objectives Prioritiesa 

1999 1. Strengthening domestic enforcement to disrupt the flow of illicit money. 8 

2. 	 Enhancing regulatory and cooperative public-private efforts to prevent money 

laundering. 

7 

3. 	 Strengthening partnerships with state and local governments to fight money 5 

laundering throughout the United States. 

4. Strengthening international cooperation to disrupt the global flow of illicit money. 6 

Total 26 

2000 1. Strengthening domestic enforcement to disrupt the flow of illicit money. 9 

2. 	 Enhancing regulatory and cooperative public-private efforts to prevent money 7 

laundering. 

3. 	 Strengthening partnerships with state and local governments to fight money 4 

laundering throughout the United States. 

4. Strengthening international cooperation to disrupt the global flow of illicit money. 7 

Total 27 

2001 5. 	 Focus law enforcement efforts on the prosecution of major money laundering 5 

organizations and systems. 

6. Measure the effectiveness of anti-money laundering efforts. 1 

7. 	 Prevent money laundering through cooperative public-private efforts and necessary 4 

regulatory measures. 

8. 	 Coordinate law enforcement efforts with state and local governments to fight money 3 

laundering throughout the United States. 

9. 	 Strengthening international cooperation to combat the global problem of money 5 

laundering. 

Total 18 

2002 10. Measure the effectiveness of anti-money laundering efforts. 2 

11. 	Focus law enforcement and regulatory resources on identifying, disrupting, and 3 11 

dismantling terrorist financing networks. 

12. 	Increase the investigation and prosecution of major money laundering organizations 4 11 

and systems. 

13. 	Prevent money laundering through cooperative public-private efforts and necessary 2 7 

regulatory measures. 

14. 	Coordinate law enforcement efforts with state and local governments to fight money 3 5 

laundering throughout the United States. 

15. Strengthen international anti-money laundering regimes. 5 10 

Total 19 50 

Source: NMLS 1999 to 2002. 

a

The NMLS for 1999 and 2000 used the term “Action Item,” and the NMLS for 2001 and 2002 used 

the term “Priority.” 

Page 13 GAO-03-813 Combating Money Laundering 

21 

15 

5 

25 

66 

18 

16 

5 

19 

58 

15 

4 

13 

6 

13 

51 

9 
The Strategy Act also created an operating mechanism within which to 

enhance interagency coordination of law enforcement investigations— 

HIFCAs. In accordance with the Strategy Act and the 1999 NMLS: 

• 	 HIFCA designations would allow law enforcement to concentrate its 

resources in areas where money laundering or related financial crimes 

appeared to be occurring at a higher rate than average.10 An interagency 

HIFCA Designation Working Group would review requests for such 

designations and provide advice for selections to be made by the Secretary 

of the Treasury, in consultation with the Attorney General.11 

• 	 A money laundering action team, where appropriate, would be created 

when a HIFCA was designated to spearhead a coordinated federal, state, 

and local anti-money laundering effort in the area, or an existing task force 

already on the ground would be mobilized. 

The 2001 NMLS specified that HIFCAs were to be operational and conduct 

investigations designed to result in indictments, convictions, and seizures, 

rather than focusing principally on intelligence gathering. Also, the 2001 

NMLS reinforced the expectations that HIFCA task forces “will be 

composed of, and draw upon, all relevant federal, state, and local 

agencies, and will serve as the model of our anti-money laundering efforts” 

and that the Departments of the Treasury and Justice were to jointly 

oversee the HIFCA task forces. 

The Strategy Act mandated that the NMLS be submitted to Congress by 

February 1 of each year, 1999 to 2003. The Strategy Act also required 

that—at the time each NMLS was transmitted to the Congress (other than 

the first transmission of any such strategy)—the Secretary of the Treasury 

must submit a report containing an evaluation of the effectiveness of 

policies to combat money laundering and related financial crimes. 

10According to the Strategy Act, several factors are to be considered in making HIFCA 

designations, including the population of the area, the number of bank and nonbank 

financial institution transactions, and observed changes in trends and patterns of money 

laundering activity. 

11Generally, the Secretary and the Attorney General can make designations on their own 

initiative, at the suggestion of other federal agencies, or at the formal request of a state or 

local official involved in money laundering detection, prevention, or enforcement. 

Page 14 GAO-03-813 Combating Money Laundering 
Early Benefit of the 

NMLS Was Affected 

by Certain Factors 

and Events 

The Treasury, Justice, and regulatory agency officials we interviewed said 

that the NMLS was initially beneficial but, over time, certain factors and 

events affected its development and implementation. Officials from each 

of the agencies endorsed the concept of having a national strategy for 

combating money laundering and related financial crimes. Generally, the 

officials said that the annual NMLS probably was more beneficial in the 

first 2 years (1999 and 2000) than in the subsequent years (2001 and 2002). 

As an initial benefit, for example, Treasury officials said that the NMLS 

was instrumental in focusing on the need to combat money laundering 

systemically and not solely on a case-by-case basis, encouraging multiple 

law enforcement agencies to work together, and raising general awareness 

of the importance of combating financial crimes. The NMLS enhanced 

their planning and communication when it was new because it served to 

formalize interagency communication in a way that had not existed before. 

Similarly, the officials noted that the early strategies were instrumental in 

expanding the perspectives of the regulatory agencies by refocusing them 

on the purposes underlying their BSA responsibilities. The early strategies 

renewed attention on the fight against money laundering that supports 

particular reporting or record keeping obligations. That is, due partly to 

the strategies, the financial regulators became more focused regarding 

ways in which criminals could be using financial institutions for money 

laundering activities. 

However, after the first couple of years, the benefit of the annual NMLS 

was affected by a number of factors and events, according to the Treasury, 

Justice, and regulatory agency officials we interviewed. One factor cited 

was that the principal agencies had significantly differing views about the 

appropriate purpose and structure of the strategy. For instance, Treasury 

preferred a document that covered the full breadth and scope of the 

federal government’s planned anti-money laundering efforts, while Justice 

preferred a more concise document that included only those priorities that 

realistically could be addressed during the year. Likewise, the regulatory 

agencies generally favored a more concise document. Several officials said 

that this fundamental difference in views resulted in less-than-full 

commitment or buy-in from some agencies, which lessened the overall 

benefit of the recent strategies. 

An event that affected the 2001 NMLS was the change in presidential 

administrations prior to the strategy’s issuance. Treasury and Justice 

officials explained that with the arrival of a new administration, it was 

necessary to revise a nearly complete NMLS to match the new 

administration’s vision for combating money laundering. This redrafting 

Page 15 GAO-03-813 Combating Money Laundering 
process caused the NMLS to be issued very late, leaving little time to 

implement any goals or objectives before drafting the 2002 NMLS. 

The officials said that the implementation of the recent strategies has been 

affected most significantly by external events—particularly September 11, 

2001, and its aftermath, which included passage of the USA PATRIOT Act 

and the creation of DHS. Treasury and Justice officials said that the 2001 

NMLS, which was issued on September 12, 2001, was virtually obsolete at 

issuance because the nature of the issues they faced had just changed 

dramatically. After September 11, combating terrorist financing became a 

major element of the federal government’s anti-money laundering efforts, 

but it was not part of the 2001 NMLS. 

The passage of the USA PATRIOT Act increased the requirements on many 

financial institutions for conducting due diligence, record keeping, 

reporting, and sharing information. Because implementing the USA 

PATRIOT Act became the main focus for the financial regulators in the 

2002 NMLS, financial regulators attributed their efforts to the USA 

PATRIOT Act rather than the NMLS. The creation of DHS required the 

transfer of most of the law enforcement functions and staff from agencies 

formerly under Treasury to the new agency. Justice anti-money laundering 

components remained in Justice. Treasury and Justice officials said that 

the implementation of some 2002 NMLS priorities was delayed pending 

formation of the new department. They also said that issuance of the 2003 

NMLS has been delayed by the same disruptions. 

As a mechanism for guiding the coordination of federal law enforcement 

agencies’ efforts to combat money laundering and related financial crimes, 

the NMLS has had mixed results and—according to the evidence we 

reviewed and the officials we contacted—generally has not been as useful 

as envisioned by the Strategy Act. For example, although expected to have 

a key role in the federal government’s efforts to disrupt and dismantle 

large-scale money laundering organizations, HIFCA task forces generally 

were not yet structured and operating as intended and had not reached 

their expectations for leveraging investigative resources or creating 

investigative synergies. Further, while Treasury and Justice made progress 

on some NMLS initiatives designed to enhance interagency coordination of 

money laundering investigations, most had not achieved the expectations 

called for in the annual strategies. Moreover, the 2002 NMLS did not 

address agency roles and interagency coordination procedures for 

conducting terrorist financing investigations. 

NMLS Generally Has 

Not Been as Useful as 

Envisioned for 

Guiding the 

Coordination of Law 

Enforcement Efforts 

Page 16 GAO-03-813 Combating Money Laundering 
HIFCA Task Forces 

Generally Had Not Yet 

Been Structured and 

Operating as Intended 

Status of HIFCA Task Forces 

As envisioned by the Strategy Act, HIFCAs represent a major NMLS 

initiative and were expected to have a flagship role in the U.S. 

government’s efforts to disrupt and dismantle large-scale money 

laundering operations. They were intended to improve the coordination 

and quality of federal money laundering investigations by concentrating 

the investigative expertise of federal, state, and local agencies in unified 

task forces, thereby leveraging resources and creating investigative 

synergies. While neither the Strategy Act nor the annual NMLS specified a 

time frame for when designated HIFCAs were to become fully operational, 

we found that the task forces had made some progress but generally had 

not yet been structured and operating as intended. As of July 2003, 

Treasury and Justice were in the process of reviewing the HIFCA task 

forces to remove obstacles to their effective operations. The results of this 

review could provide useful input for an evaluation report on the HIFCA 

program, which the Strategy Act requires Treasury to submit to the 

Congress in 2004. 

In May 2003, we contacted each of the seven designated HIFCAs to obtain 

information on the status of their task forces (see table 2). At that time, 

two of the seven HIFCAs (the Southwest Border and Miami) had not 

started operations. Law enforcement officials in the Southwest Border 

area cited several reasons for the HIFCA’s nonoperational status, including 

(1) difficulty in coordinating activities in such a large area and (2) lack of 

funds to persuade state and local officials to participate.12 In Miami, federal 

law enforcement officials had met but had not reached agreement on how 

the HIFCA should be structured or how it should operate. For example, 

the officials had not agreed on whether the Miami HIFCA should conduct 

investigations or focus principally on intelligence gathering. 

12The Southwest Border HIFCA was designated to focus on a specific money laundering 

system—i.e., the smuggling of bulk cash between the United States and Mexico—rather 

than a specific geographic area. It was to include three U.S. judicial districts—the Southern 

District of Texas, the Western District of Texas, and the District of Arizona. 

Page 17 GAO-03-813 Combating Money Laundering 
Table 2: Status of HIFCA Task Forces as of May 2003 

Number of participating law 

enforcement agencies 

Lead


agency Federal State Local Total 


Shared office 

space?bDate designated HIFCA Start datea 

March 2000 Los Angeles September 2001 IRS-CI 10 2 4 16 No 

New York/New March 2000 ICE and 10 6 21 37 Yes 

Jersey IRS-CI 

Puerto Rico March 2000 ICE and 6 3 1 10 Yes 

IRS-CI 

Southwest Border Not yet operating 

September 2001 Chicago September 2002 IRS-CI 3 1 0 4 Yes 

San Francisco September 2002 ICE and 7 0 0 7 No 

IRS-CI 

January 2003 Miami Not yet operating 

Source: Representatives from the seven designated HIFCAs and federal agency data. 

a

The start date is the date local HIFCA officials considered the task force to be conducting either 

investigations or intelligence gathering activities. 

b

According to Treasury and Justice officials, a key to the success of the HIFCA program is the ability 

to promote interagency cooperation by locating task force participants together in the same office 

space. 

In September 2003, in commenting on a draft of this report, Justice said 

that while the Southwest Border HIFCA has not worked out as intended, 

the participants in Texas and Arizona met on numerous occasions over the 

past 4 years in an attempt to find an organizational structure that could 

meet the needs of all of the participants. Justice also said that 

headquarters officials and participants in the Southwest Border area 

recently decided that the dual-state HIFCA was too ambitious and that the 

HIFCA should be limited to Texas and relocated to augment an existing 

task force. 

Although the 2001 NMLS specified that HIFCAs were to conduct 

investigations rather than principally gather intelligence, we found that 

two of the five operating task forces (Los Angeles and San Francisco) 

were primarily focusing on intelligence gathering activities—such as 

reviews of Suspicious Activity Reports (SAR) and other information 

required by the BSA—and had not established multiagency investigative 

Page 18 GAO-03-813 Combating Money Laundering 
units to act on the intelligence.

13 HIFCA officials in Los Angeles told us 

they planned to locate task force participants together in the same area in 

mid- or late-2003, at which time multiagency investigative units would be 

established. In San Francisco, a HIFCA official told us their proposal to 

become a HIFCA specified that the task force would focus on intelligence 

and that there were no plans to establish multiagency investigative units 

within the HIFCA. Treasury and Justice officials responsible for 

overseeing the HIFCAs told us that headquarters was reluctant to require 

the task forces to establish multiagency investigative units, primarily 

because the Strategy Act did not provide additional funds or personnel to 

establish such units. The officials noted that even though the 2001 NMLS 

specified that HIFCAs were to conduct investigations, task forces that 

focus on intelligence gathering activities but do not conduct investigations 

do enhance interagency efforts to combat money laundering. 

Also, because the investigative activities of the three HIFCAs that had 

multiagency investigative units (Chicago, New York/New Jersey, and 

Puerto Rico) were based on task force structures already in place before 

the HIFCA designation, the overall effect of the NMLS on these task forces 

is unclear. For example, the New York/New Jersey HIFCA essentially 

represented a renaming of the well-established El Dorado Money 

Laundering Task Force, which had existed since 1992. As mentioned 

previously, a HIFCA task force could be (1) created when a HIFCA was 

designated or (2) based on an existing task force. 

Further, in some cases, federal law enforcement agencies had not 

provided the levels of commitment and staffing to the HIFCA task forces 

called for by the strategy. As shown in table 2, ICE and/or IRS-CI were 

designated the lead agency in each of the five operational task forces. We 

found that most of the HIFCAs did not have DEA or FBI agents assigned 

full-time to the task forces. For example, regarding the three HIFCAs with 

multiagency investigative units, DEA and the FBI were not members of the 

Chicago HIFCA, DEA was not a member of the New York/New Jersey 

HIFCA, and both DEA and the FBI had only part-time representation on 

the Puerto Rico HIFCA. As also shown in table 2, four of the five operating 

13Pursuant to regulations issued by Treasury as authorized by the BSA and each of the bank 

regulators, certain financial institutions are required to file SARs with FinCEN to report 

transactions involving $5,000 or more that they suspect involve funds derived from illegal 

activity. These reports provide information that can enable law enforcement agencies to 

generate investigative leads, understand financial relationships in ongoing investigations, 

and identify forfeitable assets. 

Page 19 GAO-03-813 Combating Money Laundering 
Oversight of HIFCA Task 

Forces Has Not Met 

Expectations 

HIFCAs had little or no participation from state and local law enforcement 

agencies, with the notable exception being the New York/New Jersey 

HIFCA. The NMLS called for each HIFCA to include participation from all 

relevant federal, state, and local agencies. 

Justice headquarters officials said the main problem with supporting the 

HIFCA task forces was the absence of additional funds or personnel to 

offer law enforcement agencies in return for their participation. A DEA 

official told us that, because of differences in agencies’ guidelines for 

conducting undercover money laundering investigations, DEA will not 

dedicate staff to HIFCA task force investigative units but will support 

intelligence-related activities.14 FBI officials cited resource constraints as 

the primary reason why the bureau does not fully participate. Various task 

force officials mentioned lack of funding to compensate or reimburse 

participating state and local law enforcement agencies as a barrier to their 

participation in HIFCA operations. Further, Treasury and Justice officials 

noted that a key to the success of the HIFCA program is the ability to 

promote interagency cooperation by locating task force participants 

together in the same office space. Accordingly, the 2002 NMLS called for 

headquarters to examine how to fund the colocation of HIFCA task force 

participants absent funds appropriated specifically for that purpose. 

While we recognize that federal law enforcement agencies have resource 

constraints and competing priorities, we note that HIFCA task forces were 

expected to make more effective use of existing resources or of such 

additional resources as may be available. Without commitment and 

staffing from relevant federal, state, and local agencies, the task forces 

cannot fully leverage resources and create investigative synergies, as 

envisioned by the Strategy Act. 

Treasury and Justice have not provided the level of oversight of the HIFCA 

task forces called for by the NMLS. For example, in response to our initial 

inquiries and formal requests for information, Treasury and Justice 

officials responsible for overseeing the HIFCA task forces could not 

readily provide basic information, such as names of participating agencies 

14As discussed later in this report, the 2002 NMLS called for Treasury and Justice to 

develop uniform guidelines for undercover money laundering investigations. 

Page 20 GAO-03-813 Combating Money Laundering 
and contact persons or the results of task force operations.15 Also, as 

shown in table 3, Treasury and Justice had not addressed various NMLS 

initiatives designed to oversee HIFCA operations, and many of the 

initiatives were still ongoing well past expected completion dates. Fully 

addressing these initiatives could help ensure accountability within the 

HIFCAs, as well as refine the operational mission, structure, and 

composition of the task forces. 

15Treasury and Justice were to jointly oversee the HIFCA task forces. To assist their efforts, 

the departments created an interagency HIFCA working group. Regarding the 2002 NMLS, 

the group was to include representatives from the Customs Service, DEA, EOUSA, the 

Executive Office for Organized Crime Drug Enforcement Task Forces, FBI, Federal Law 

Enforcement Training Center, FinCEN, IRS-CI, Justice’s Asset Forfeiture and Money 

Laundering Section, Office of National Drug Control Policy, U.S. Postal Inspection Service, 

Secret Service, and Treasury’s Office of Enforcement. 

Page 21 GAO-03-813 Combating Money Laundering 
Table 3: Status of NMLS Initiatives Related to HIFCA Oversight 

Annual Target date for Status (as of July 

NMLS NMLS initiative completion Target date met? 2003)a 

2000 Oversee newly designated HIFCA task forces: 

NMLS 

16. Report on the progress of the HIFCA task forces. (1) December 2000 No Not addressed 

17. 	Formulate a reporting system so that the impact of (2) During the year No Ongoing 

the HIFCAs can be evaluated. 

2001 Design the organizational structure of HIFCA task forces October 2001 No Not addressed 

NMLS and designate regional task force directors. 

HIFCA representatives will brief Treasury and Justice 

officials on: 

18. HIFCA activities and coordination efforts. (1) March 2002 No Not addressed 

19. 	The progress of investigations and the involvement (2) Quarterly No Not addressed 

of federal, state, and local law enforcement and 

regulatory agencies. 

Establish a new asset forfeiture reporting system for March 2002 No Ongoing 

HIFCA task forces and implement its usage. 

2002 Review HIFCA task forces to remove obstacles to their 

NMLS effective operation: 

20. 	Review the progress of each HIFCA and assess (1) December 2002 (1) No (1) Ongoing 

how well the HIFCA concept is working. 

21. 	Recommend what changes to make so that the (2) February 2003 (2) No (2) Ongoing 

HIFCAs can achieve their mission objectives. 

Each HIFCA will report on participation of state and local November 2002 No Ongoing 

enforcement, regulatory, and prosecution agencies, and 

identify steps needed to include participation of all 

relevant agencies. 

Provide advanced money laundering training in each of November 2002 Yes Completedb 

the six HIFCA locations. 

Source: GAO analysis of the NMLS (2000 through 2002) and interviews with Treasury and Justice headquarters officials. 

a

 “Not addressed” indicates that Treasury and Justice took little or no action on the NMLS initiative 

and that no future action is planned. “Ongoing” indicates that Treasury and Justice had not completed 

the initiative by its target date, but there was ongoing or planned future work related to the initiative. 

b

Advanced money laundering training was not provided to the Southwest Border HIFCA, because the 

HIFCA did not have an operational task force. 

Treasury and Justice officials told us the primary reasons for not 

addressing or not yet completing the HIFCA initiatives were that 

headquarters (1) was reluctant to impose a structure or reporting 

requirement on the field without offering any new resources and (2) did 

not believe that a single structure could fit every HIFCA. The officials also 

said that the individual HIFCAs were in the best position to address their 

Page 22 GAO-03-813 Combating Money Laundering 
Money Laundering Training 

Was Provided to HIFCAs 

specific needs and problems. Further, the officials told us that, while most 

of the HIFCA initiatives had not been addressed or were not yet 

completed, the HIFCA structure at headquarters has provided a 

framework for regular interagency meetings to discuss money laundering 

trends and ways to improve interagency cooperation. 

As shown in table 3, although only one of the HIFCA initiatives was 

completed by the specified milestone or goal date, many of the initiatives 

were still ongoing. For example, the 2002 NMLS called for a review of 

HIFCA task forces to remove obstacles to their effective operation. 

Specifically, the initiative called for an interagency HIFCA team to 

(1) review the accomplishments of the HIFCA task forces to date; (2) 

examine structural and operational issues, including how to fund the 

colocation of participants in HIFCA task forces absent funds appropriated 

for that purpose; and (3) examine existing operations and make 

recommendations to ensure that each HIFCA is composed of all relevant 

federal, state, and local enforcement authorities, prosecutors, and 

financial supervisory agencies as needed. As of July 2003, the HIFCA 

review team was still in the process of assessing the HIFCAs. When 

completed, the team’s review could provide useful input for an evaluation 

report on the effectiveness of and the continued need for HIFCA 

designations, which is required by the Strategy Act to be submitted to the 

Congress in 2004. 

According to the 2002 NMLS, Treasury and Justice have conducted a 

substantial amount of fundamental, advanced, and specialized money 

laundering training to task forces, agencies, investigators, and prosecutors. 

For example, as included in the 2002 NMLS (see table 3), the Federal Law 

Enforcement Training Center, in cooperation with Treasury and Justice, 

have provided an advanced money laundering training course in six 

HIFCA locations. According to a Federal Law Enforcement Training 

Center official, approximately 900 to 1,000 agency representatives have 

participated in the 3-day training seminar. The official said that the 

training focused on numerous issues, including money laundering statutes, 

the impact of the USA PATRIOT Act, basic and international banking, 

asset forfeiture issues, and specific money laundering schemes and 

organizations. 

Page 23 GAO-03-813 Combating Money Laundering 
NMLS Initiatives to 

Enhance Coordination of 

Law Enforcement 

Investigations Generally 

Were Not Addressed or 

Were Still Ongoing 

Progress Was Made on Some 

Law Enforcement Coordination 

Initiatives 

Most Law Enforcement 

Coordination Initiatives Were 

Not Addressed or Were Still 

Ongoing 

While Treasury and Justice made progress on some NMLS initiatives that 

were specifically designed to enhance coordination of federal law 

enforcement agencies’ money laundering investigations, most of the 

initiatives were not addressed or were still ongoing.16 In general, the failure 

to address or complete the initiatives indicates that interagency 

coordination was falling short of expectations. 

Treasury and Justice made progress in implementing some of the NMLS 

law enforcement coordination initiatives. For example, as called for in the 

1999 and 2000 strategies, the departments took steps to (1) enhance the 

money laundering focus of interagency counter-drug task forces and 

(2) collect and analyze information on the money laundering aspects of the 

task forces’ investigations. More recently, the 2002 NMLS called for an 

interagency team to identify money laundering-related targets for 

coordinated enforcement action. The strategy noted that targets could be 

particular organizations or systems used or exploited by money 

launderers, such as the smuggling of bulk cash and unlicensed money 

transmitters. In August 2002, Treasury and Justice created an interagency 

team and identified a money laundering-related target and four cities in 

which to conduct investigations. In July 2003, Justice officials told us that 

U.S. Attorneys Office officials had agreed to participate in the targeting 

initiative and that the initiative was ongoing. 

Most of the annual strategy initiatives designed to enhance interagency 

coordination of law enforcement investigations were not addressed or 

were still ongoing. Three examples are as follows. First, the Customs 

Service created a Money Laundering Coordination Center in 1997 to 

(1) serve as the repository for all intelligence information gathered 

through undercover money laundering investigations and (2) function as 

the coordination and “deconfliction” center for both domestic and 

international undercover money laundering investigations.17 Both the 

16Each of the four published annual strategies (1999 through 2002) presented one or more 

initiatives to enhance interagency coordination of money laundering investigations. 

Collectively, the four strategies presented 14 such initiatives. 

17Deconfliction is a process that law enforcement agencies use to help ensure officer safety 

during tactical activities such as drug stings. For example, by logging each planned activity 

into a central location or deconfliction unit, officers try to ensure that they are not 

targeting another investigation’s subjects or otherwise compromising an ongoing 

investigation. 

Page 24 GAO-03-813 Combating Money Laundering 
1999 and the 2000 NMLS contained an initiative to encourage all applicable 

federal law enforcement agencies to participate in the Money Laundering 

Coordination Center. During our review, Customs Service officials (before 

the agency was transferred to DHS) told us that, although Justice agencies 

(including DEA and FBI) were invited to use the center, these agencies 

were only occasional users and did not contribute information to the 

center.18 

DEA and FBI officials told us that their agencies did not use the Money 

Laundering Coordination Center because they could not reach a 

satisfactory memorandum of understanding regarding participation, 

including controls over the dissemination of information. DEA officials 

added that the center does not meet DEA’s needs because it is used for 

deconfliction only. In August 2003, the DEA officials said that DEA had 

created and was testing a new database that is designed to be a single 

source for information on money laundering investigations related to drug 

money. The officials added that DEA has briefed Treasury and DHS about 

the new database, but as of August 2003, no other agencies were 

participating. 

Second, federal law enforcement agencies do not have uniform guidelines 

applicable to undercover money laundering investigations. According to 

the 2002 NMLS and our discussions with law enforcement officials, the 

lack of uniform guidelines inhibits some agencies from participating in 

investigations that have an international component. For example, a DEA 

official told us that DEA guidelines generally are more restrictive than 

guidelines used by Customs (as part of ICE) in regard to (1) obtaining 

approval to initiate and continue undercover investigations and 

(2) coordinating activities with foreign counterparts. Therefore, the 

officials noted that DEA generally could not participate in international 

undercover money laundering investigations led by Customs. The 

2002 NMLS called for Treasury and Justice to develop uniform undercover 

guidelines by September 2002 to ensure the full participation of all 

applicable federal law enforcement agencies in undercover money 

laundering investigations. Treasury officials told us the initiative is still 

ongoing but has been put on hold, pending reorganizations associated with 

the creation of DHS. 

18In March 2003, the Customs Service and the Money Laundering Coordination Center were 

transferred from Treasury to DHS’s ICE. 

Page 25 GAO-03-813 Combating Money Laundering 
Third, Treasury and Justice have not yet fully implemented NMLS 

initiatives designed to establish SAR review teams in federal judicial 

districts. The 2001 NMLS contained an initiative that called for the creation 

of a SAR review team in each federal judicial district. Generally, each 

team—to be comprised of an Assistant U.S. Attorney and representatives 

from federal, state, and local law enforcement agencies—was expected to 

evaluate all SARs filed in their respective federal judicial district. 

The 2001 SAR initiative has been partially implemented. Treasury officials 

noted that Justice has primary responsibility for implementation because 

Justice provides guidance and direction to EOUSA and the U.S. Attorneys 

Offices. According to EOUSA officials, Justice, EOUSA, and the U.S. 

Attorneys Offices have actively encouraged the creation of SAR review 

teams and these efforts remain ongoing. At our request, in July 2003, 

EOUSA conducted an informal survey of U.S. Attorneys Offices and 

reported that at least 33 of the 94 federal judicial districts were actively 

using interagency SAR review teams. 

The 2002 NMLS had a more conservative SAR-related initiative, calling for 

the establishment of five additional review teams. Specifically, the 2002 

NMLS initiative called for Treasury and Justice—by August 2002—to 

(1) identify a priority list of five federal judicial districts that do not have a 

SAR review team but could benefit from one and (2) work with EOUSA 

and the respective U.S. Attorneys Offices to encourage the creation of 

interagency review teams.19 As of July 2003, this initiative had not yet been 

completed, but efforts were still ongoing. 

Further, although not called for by the NMLS, the IRS has had a related 

initiative to create interagency SAR review teams. Specifically, IRS-CI data 

show that IRS has established 41 SAR review teams nationwide—with all 

35 IRS field offices having at least one functioning team—and that most of 

the review teams had participation from other agencies. According to IRSCI officials, collectively, the 41 teams are to review every SAR filed in the 

94 federal judicial districts. The officials said that at least 4 of the districts 

in which a HIFCA task force is located were using an interagency SAR 

review team. The officials noted that IRS review teams are not to duplicate 

19According to the 2002 NMLS, SAR review teams also can review selected wire transfers. 

The strategy noted that expanding the work of the teams to include the selective review of 

wire transfers could help law enforcement agencies coordinate their efforts to investigate 

and prosecute money laundering organizations. 

Page 26 GAO-03-813 Combating Money Laundering 
Reasons for Not Fully 

Implementing Interagency 

Coordination Initiatives 

SAR reviews already performed by existing task forces in federal judicial 

districts. 

Treasury officials told us that resource constraints and competing 

priorities were the primary reasons why many of the law enforcement 

coordination initiatives were not yet fully implemented. Also, the officials 

said that, over the past few years, Treasury has given higher priority to 

other parts of the annual strategy—such as international, regulatory, and 

terrorism-related initiatives—than to domestic law enforcement initiatives. 

Further, the officials said that Treasury generally took the lead in 

implementing the annual strategy but could not require other agencies to 

focus on specific initiatives or activities. In this regard, the officials said 

that other agencies frequently had their own priorities. 

Justice officials also said that the annual strategies have contained more 

initiatives than realistically could be pursued. The officials added that to 

the extent NMLS initiatives were not completed or target dates were 

missed, it was because of competing priorities or the lack of resources 

available for proper implementation of the strategy. The officials noted 

that there are complex issues involved in attempting to coordinate the 

resources, practices, and priorities of two (and sometimes more) 

departments and several law enforcement agencies, as well as U.S. 

Attorneys Offices throughout the country. Further, Justice officials told us 

that while NMLS initiatives to institutionalize coordination may not have 

been fully implemented, the efforts to do so and regular meetings have 

been continuing. 

Page 27 GAO-03-813 Combating Money Laundering 
NMLS Did Not Address 

Agency Roles and Task 

Force Coordination in 

Terrorist Financing 

Investigations, but a 

Recent Interagency 

Agreement May Help 

Clarify Roles 

In developing the 2002 NMLS, Treasury and Justice officials met to discuss 

the roles of the various investigative agencies involved in combating 

terrorist financing. However, the two departments could not reach 

agreement, and the 2002 strategy was published without addressing the 

agencies’ roles. In general, Justice’s position was that it had exclusive 

statutory authority to lead all terrorist financing investigations, while 

Treasury maintained that it also had the authority and the needed 

expertise to lead such investigations.20 In commenting on a draft of the 

2002 strategy, the FBI noted the following: 

• 	 The strategy does not address the various agencies’ duplication of efforts 

to combat terrorist financing. 

• 	 By not specifically addressing and delineating the roles of the respective 

agencies, the strategy creates more confusion than it resolves and wastes 

limited resources. 

Moreover, the strategy section on U.S. government efforts to identify, 

disrupt, and dismantle terrorist financing networks did not mention or 

clarify roles of the three primary law enforcement task forces involved in 

investigating terrorist financing—Customs’ Operation Green Quest (OGQ) 

and the FBI’s Terrorist Financing Operations Section (TFOS) and Joint 

Terrorism Task Forces (JTTF).21 

According to Treasury officials, the NMLS drafting process realistically 

could not have been expected to resolve the long-standing, highly 

challenging issues associated with the interagency jurisdictional dispute. 

While we agree that it may have been unrealistic to expect the drafting 

process to resolve the long-standing issues, we note that a primary role of 

the NMLS is to enhance interagency coordination and help resolve turfprotection battles. Because the issue was not addressed in the 2002 NMLS, 

the problem remained, thus leaving unresolved possible duplication of 

efforts and disagreements over which agency should lead investigations. 

In our view, any way the NMLS could have advanced resolution of the 

matter would have been beneficial. 

20In commenting on a draft of this report, Justice said that, in summary, 18 U.S.C. § 2332b(f) 

assigned to the Attorney General primary investigative responsibility for all federal crimes 

of terrorism generally, and that 18 U.S.C. § 2339B(e) directed the Attorney General 

specifically to conduct any investigation of a possible violation of the federal terrorism 

financing statutes. 

21In March 2003, Customs and OGQ were transferred from Treasury to DHS’s ICE. 

Page 28 GAO-03-813 Combating Money Laundering 
Agencies Did Not Fully 

Coordinate Terrorist Financing 

Investigations 

To help avoid overlapping investigations and duplication of efforts, it is 

important that agencies investigating terrorist financing have coordination 

mechanisms. At the policy level, a National Security Council policy 

coordination committee on terrorist financing is responsible for 

coordinating antiterrorist financing activities.22 This committee is to 

consider evidence of terrorist financing networks and coordinate 

strategies for targeting terrorists, their financiers, and supporters. At the 

operational level, we found that some interagency coordination of terrorist 

financing investigations existed between agency headquarters’ 

components. For example, OGQ and TFOS had assigned one agent to each 

other’s headquarters in Washington, D.C. The FBI also was to provide 

information on its activities to OGQ through daily downloads from the 

FBI’s terrorist financial database. Further, OGQ and FBI officials told us 

that local mechanisms existed around the country to deconflict 

investigations. 

While OGQ and the FBI task forces took steps to inform each other about 

the targets of their investigations, we found that the task forces did not 

fully coordinate their activities. For example, at the three locations we 

visited (Los Angeles, Miami, and New York City), OGQ and JTTF officials 

told us they generally were not aware of each other’s financial 

investigations and that the task forces generally did not share investigative 

information. Several officials indicated that there were problems with 

conflicting or competing investigations, including disagreements over 

which task force should lead investigations. Officials at all three locations 

noted that the government’s antiterrorist financing efforts could be 

improved if the task forces worked more closely with each other or were 

combined. 

Further, at the three locations we visited, IRS-CI officials who had agents 

assigned to the local OGQ and JTTF also indicated that the task forces 

were not fully operating in a coordinated and integrated manner. 

Specifically, in Miami and New York City, IRS-CI officials told us that 

having both OGQ and the JTTF doing the same type of antiterrorist 

financing work was a duplication of effort. IRS-CI officials in Los Angeles 

noted that communication between the two task forces could be better. 

Also, in response to our inquiry about interagency coordination, U.S. 

22Committee participants include representatives from the Departments of the Treasury, 

Justice, and State; the National Security Council; and the intelligence community. 

Page 29 GAO-03-813 Combating Money Laundering 
May 2003 Interagency 

Agreement Defined Agency 

Roles 

Attorneys Office officials in the Southern District of Florida provided the 

following response in February 2003: 

“With respect to the FBI’s Joint Terrorism Task Force (FBI-JTTF) and Customs’ Operation 

Green Quest, we would like to see increased cooperation and coordination between the 

agencies. Too often agents of the FBI and Customs are investigating terrorist financing 

independent of each other or overlapping in the targets of their investigations. Some of the 

barriers to greater interagency participation may be conflicting priorities of each of the 

agencies. Ongoing battles as to which agency is the ‘lead’ agency continues to be a 

problem...” 

In commenting on a draft of this report, Treasury said that it continues to 

believe that the dispute over who took the lead in investigating the 

financing of terrorism did not necessarily result in duplication of efforts. 

Treasury said that the issue was largely definitional, with the FBI leading 

terrorist investigations with an ancillary financial component versus 

Customs financial investigations that might have a terrorist-related 

connection. 

On May 13, 2003, the Attorney General and the Secretary of Homeland 

Security signed a memorandum of agreement regarding the antiterrorist 

financing roles of the respective departments and component agencies. In 

general, the agreement gives the FBI the lead role in investigating terrorist 

financing and specifies that DHS is to pursue terrorist financing 

investigations solely through its participation in FBI-led task forces, 

except as expressly approved by the FBI. Some excerpts from the May 

2003 agreement are paraphrased substantially as follows: 

• 	 The FBI is to lead terrorist financing investigations and operations, 

utilizing the intergovernmental and intra-agency National JTTF at FBI 

headquarters and the JTTFs in the field. Through TFOS, the FBI is to 

provide overall operational command to the national JTTF and the field 

JTTFs. 

• 	 After June 30, 2003, DHS is to pursue terrorist financing investigations and 

operations solely through its participation in the National JTTF, the field 

JTTFs, and TFOS, except as expressly approved by TFOS. 

• 	 The Secretary of Homeland Security agreed that, no later than June 30, 

2003, OGQ was to no longer exist as a program name. The Secretary 

agreed to ensure that any future DHS initiative or program to investigate 

crimes affecting the integrity and lawful operation of U.S. financial 

Page 30 GAO-03-813 Combating Money Laundering 
infrastructures would be performed through the financial crimes division 

at ICE. 

The May 2003 agreement also contained several provisions designed to 

enhance the coordination and integration of FBI and ICE financial 

investigations. For example, the agreement calls for the FBI and ICE to 

(1) detail appropriate personnel to each other’s task forces, (2) take steps 

to ensure that the detailees have full and timely access to data and other 

information, and (3) develop procedures to ensure effective operational 

coordination of FBI and ICE investigations. Further, the FBI Director and 

the Assistant Secretary for ICE were to provide a joint written report on 

the implementation status of the agreement 4 months after its effective 

date to the Attorney General, the Secretary of Homeland Security, and the 

Assistant to the President for Homeland Security. However, as of 

September 24, 2003, the report had not yet been issued. 

If successful, the May 2003 agreement could prove to be a significant step 

toward establishing a coordinated interagency framework for conducting 

terrorist financing investigations. At the time of our review, it was too 

early to assess the implementation of the agreement. 

Most financial regulators we interviewed said that the NMLS had some 

influence on their anti-money laundering and antiterrorist financing efforts 

but that it has had less influence than other factors. Officials said that, 

since September 11, a change in government perspective and additional 

requirements placed on financial institutions by the USA PATRIOT Act 

and its implementing regulations have been the primary influences on 

their efforts. Although the financial regulators said that the NMLS had 

minimal influence on establishing priorities for their anti-money 

laundering and antiterrorist financing activities, they have completed the 

tasks for which they were designated as lead agencies over the years, and 

most of those for which they were to provide support to Treasury. The 

2002 NMLS noted that the financial regulators were responsible for 

implementing the parts of the USA PATRIOT Act that applied to the 

entities they regulate. Appendix III describes the anti-money laundering 

requirements set forth in the USA PATRIOT Act and the rules that have 

been implemented thereunder. 

NMLS Has Had Some 

Influence on Financial 

Regulators’ Efforts, 

but Other Factors 

Played a Larger Role 

Page 31 GAO-03-813 Combating Money Laundering 
Financial Regulators Said 

Factors Other Than the 

NMLS Exerted a Greater 

Influence on Their AntiMoney Laundering Efforts 

Most financial regulators we interviewed said that the NMLS had some 

influence on their anti-money laundering efforts because it has provided a 

forum for enhanced coordination, particularly with law enforcement 

agencies, but that it has had less influence than other factors. Similarly, 

law enforcement agency officials told us that the level of coordination 

between the financial regulators and their agencies was good and that they 

received the assistance and information they needed from the regulators. 

They did not, however, attribute this to the strategy but, rather, to legal 

requirements. 

Financial regulators said that several other factors influenced their antimoney laundering efforts to a greater extent than the NMLS. These factors 

include working groups that had already developed as a result of BSA 

implementation, the impact of September 11 on raising awareness of the 

importance of fighting money laundering and terrorist financing, and the 

passage of the USA PATRIOT Act. The financial regulators said that they 

have been working on anti-money laundering issues for many years and 

generally initiate their own anti-money laundering activities. Bank 

regulators and SEC pointed out that the BSA was passed in 1970 and that 

they have been concerned with ensuring banks’ and broker-dealers’ 

compliance with its requirements ever since. The USA PATRIOT Act 

extended responsibility for implementing the BSA to additional financial 

regulators as well as increased anti-money laundering requirements for 

certain financial institutions.23 Additionally, most financial regulators 

participate in the BSA Advisory Group, in which the financial regulators 

coordinate and communicate among themselves and with financial 

institutions on enforcing BSA requirements. Other coordinating forums 

include the Federal Financial Institutions Examination Council, Financial 

Action Task Force, and USA PATRIOT Act working groups established to 

develop and implement regulations resulting from the passage of the USA 

PATRIOT Act.24 

23Not all BSA regulations have been implemented for banks and broker-dealers at the same 

time. The suspicious activity reporting requirement for banks was adopted by Treasury in 

1996. The suspicious activity reporting requirement for most broker-dealers was adopted 

by Treasury in 2002. Broker-dealers affiliated with bank holding companies were subject 

to the earlier 1996 reporting requirement. 

24The Financial Action Task Force is an international body with 33 member countries, 

territories, and organizations that sets international standards to assist countries in their 

efforts to combat money laundering and terrorist financing. The U.S. delegation to the 

Financial Action Task Force includes representatives from the Departments of the 

Treasury, Justice, and State. 

Page 32 GAO-03-813 Combating Money Laundering 
Although the NMLS provided a forum in which the financial regulators 

could better coordinate with law enforcement agencies, other avenues for 

cooperation are prescribed by law, and some existed before passage of the 

Strategy Act. For example, depository institutions have been required to 

file SARs since 1996. Since December 2002, securities brokers and dealers 

have been required to file SARs with FinCEN as a result of the USA 

PATRIOT Act and its implementing regulations. (See app. III.) Certain 

financial institutions are also required to file Currency Transaction 

Reports with FinCEN for transactions that involve $10,000 or more in 

currency. Like SARs, these reports are supposed to be analyzed to look for 

suspicious activity. Financial regulators said they oversee financial 

institutions’ programs for complying with these legal requirements 

because it is their statutory responsibility, not because it is included in the 

NMLS. They said they would do so with or without the strategy. 

Most officials said that September 11 greatly affected how the 

administration and Congress thought about money laundering because 

some of the techniques used to launder money, illicitly moving funds to 

avoid detection, are similar to those used to finance terrorist activity. 

Some officials said the new administration was more concerned with the 

burden anti-money laundering compliance placed on financial institutions 

prior to September 11, but that the events of September 11 changed this, 

resulting in more attention being paid to the importance of anti-money 

laundering compliance. Congress passed the USA PATRIOT Act, which, 

for example, increased the due diligence, reporting, and record keeping 

requirements for some financial institutions to guard against their being 

used by their customers to launder money or finance terrorist activity. 

Some officials noted that USA PATRIOT Act requirements reflected topics 

being discussed in the NMLS and other working group meetings that might 

still have been in the discussion phase had not September 11 motivated 

their inclusion in the USA PATRIOT Act, thus requiring Treasury and other 

agencies to issue regulations. Reflecting this change of emphasis, the 2002 

NMLS discussed the need to adapt traditional methods of combating 

money laundering to unconventional tools used by terrorist organizations 

to finance their operations. According to the 2002 NMLS, the primary 

responsibility of the financial regulators was to participate in the drafting 

and issuance of USA PATRIOT Act regulations and to provide technical 

expertise on the operations of depository institutions and other financial 

institutions to Treasury. The regulators also worked to educate financial 

institutions and their own staff on the new requirements. 

Page 33 GAO-03-813 Combating Money Laundering 
Federal Financial 

Regulators Have Been 

Involved in the 

Implementation of Many 

Action Items in the NMLS, 

but Most Have Been Led 

by Treasury 

The federal financial regulators have participated in the implementation of 

the NMLS from 1999 to 2002 in a variety of ways, including participation in 

working groups established by the NMLS and, in 2002, worked with 

Treasury to implement provisions of the USA PATRIOT Act. The federal 

financial regulators were expected to participate in NMLS initiatives, but 

Treasury, rather than the financial regulators, was usually designated as 

the lead agency responsible for implementation.25 Most federal financial 

regulators are independent federal agencies. Therefore, while the financial 

regulators have committed to work with Treasury and Justice on NMLS 

initiatives, they are not required to do so because, with the exception of 

OCC and OTS, they are not part of the executive branch. Previous 

strategies have called for the financial regulators to work with Treasury 

and Justice on several efforts, such as (1) coordinating on establishing 

policies for enhanced information sharing between law enforcement 

agencies and the regulatory agencies, (2) working with the financial 

services industry to develop guidance for financial institutions to enhance 

scrutiny of high-risk money laundering transactions and customers, and 

(3) developing a SAR requirement for broker-dealers. However, policies 

for enhanced information sharing were not finalized until the USA 

PATRIOT Act required that they be developed. For example, section 314 of 

the USA PATRIOT Act was designed to enhance cooperation among 

certain entities involved in the detection of money laundering. Section 

314(a) encourages regulatory authorities and law enforcement authorities 

to share with financial institutions information regarding individuals, 

entities, and organizations engaged in or reasonably suspected based on 

reliable evidence of engaging in terrorist acts or money laundering 

activities. Section 314(b) encourages information sharing among financial 

institutions themselves. In addition, rules promulgated by FinCEN under 

section 314 allow law enforcement authorities to make requests to 

financial institutions through FinCEN of certain account information for 

individuals, entities, and organizations that may be engaged in terrorist 

acts or money laundering activities. Information is provided to FinCEN, 

who gives the law enforcement entities a comprehensive product. SEC 

worked with FinCEN on a proposed broker-dealer SAR requirement from 

1999 to 2001. However, a final rule was not issued until 2002, when it was 

required under the USA PATRIOT Act. 

25The 1999 NMLS did not designate leads for priority or action items, but the 2000, 2001, 

and 2002 NMLS did. 

Page 34 GAO-03-813 Combating Money Laundering 
Each NMLS has called for the federal bank regulators as a group or OCC 

individually to lead a review of their bank examination procedures 

regarding anti-money laundering efforts and to implement the results of 

these reviews. While the financial regulators have been involved in a 

variety of different tasks and working groups in the NMLS, they served as 

leads only in these reviews.26 Table 4 lists annual NMLS initiatives to 

review bank examination procedures, the lead agency or agencies, and the 

status of the initiatives. 

26However, OCC, along with the Departments of the Treasury and State, was designated as 

lead in the 2001 NMLS for initiating counter measures against noncooperative countries 

and territories. 

Page 35 GAO-03-813 Combating Money Laundering 
Table 4: NMLS Initiatives to Review Bank Examination Procedures, as of July 2003 

NMLS year NMLS initiativea Status 

1999 	 Federal bank regulators, in cooperation with the Department of the Treasury, will conduct Completed 

a review of existing bank examination procedures relating to the prevention and detection 

of money laundering at financial organizations, to be completed within 180 days.b

 Lead: 

None designated. 

2000 	 The federal bank supervisory agencies will implement the results of their 180-day review 

of bank examinations procedures relating to the prevention and detection of money 

laundering at financial organizations. Lead: OCC. Examples of anticipated actions: 

OCC will (1) update Comptroller’s Handbook for Bank Examiners, including a new (1) Completed 


requirement to perform transactional testing of high-risk accounts at every bank 


examination and (2) implement a program to target for examination those institutions that (2) Completed 


are considered most vulnerable to money laundering. 


FDIC will amend examination procedures on enhanced guidance to bank examiners on Completed 

high-risk activities to include guidance on foreign correspondent accounts. 

FDIC and OCC will continue to develop interagency anti-money laundering training Completed 

modules, which will be completed in 2000. 

The Federal Reserve will: (1) implement new procedures that will concentrate on ensuring (1) Completed 


that banks implement effective operating systems and procedures to manage operations (2) Completed
 legal and reputational risks as they pertain to BSA anti-money laundering efforts; (2) 


provide guidance on appropriate levels of enhanced scrutiny for high-risk customers and (3) Ongoing 


services; and (3) increase emphasis on maintaining systems to detect and investigate 


suspicious activity throughout every business sector of a banking organization. 


OTS will assess the efficacy of its recently revised risk-focused BSA examination Completed 


procedures and will implement enhancements developed by benchmarking with other 


agencies. 


2001 Continue to identify and implement enhancements to examination procedures where Ongoing 

necessary to address the ever-changing nature of money laundering. Lead: All federal 

bank regulators. 

2002 Review current examination procedures of the federal supervisory agencies to determine Ongoing 

whether enhancements are necessary to address the ever-changing nature of money 

laundering, including terrorist financings. Lead: OCC and Treasury. 

Source: 1999 to 2002 NMLS and financial regulatory data. 

a

The NMLS for 1999 and 2000 used the term “Action Item,” and the NMLS for 2001 and 2002 used 

the term “Priority.” 

b

Although NCUA officials said they also completed these initiatives, the NMLS named only FRB, 

OCC, FDIC, and OTS as agencies responsible for these initiatives. 

The financial regulators have also worked with Treasury as the lead 

agency for the U.S. government’s international anti-money laundering 

efforts. Over time, the NMLS has called for the United States to strengthen 

international cooperation and collaboration and to work to strengthen the 

anti-money laundering efforts of other countries. Much of Treasury’s effort 

in this area has been done as part of multinational bodies, such as the 

Financial Action Task Force, and international financial institutions, such 

Page 36 GAO-03-813 Combating Money Laundering 
The Annual NMLS 

Has Not Reflected 

Critical Components 

Identified by GAO as 

Key to Developing 

and Implementing 

National Strategies 

as the World Bank and the International Monetary Fund.27 Treasury’s 

efforts, working with these bodies, have focused on making anti-money 

laundering assessments a permanent part of the International Monetary 

Fund and World Bank surveillance and oversight of financial sectors and 

providing technical assistance and training to jurisdictions willing to make 

the necessary changes to their anti-money laundering regimes. Treasury 

officials involved in international anti-money laundering efforts said that 

the NMLS has served as a useful tool to plan and coordinate their 

international efforts that include the financial regulators, which provide 

technical assistance and participate in international meetings of these 

bodies. Officials from the FRB, OCC, FDIC, OTS, SEC, and CFTC all said 

that they had worked with Treasury on international anti-money 

laundering efforts, including the preparation for or participation in 

meetings of the Financial Action Task Force and of international financial 

institutions. 

In recent years, our work in reviewing national strategies for various 

crosscutting issues has identified several critical components needed for 

their development and implementation; however, key components have 

not been well reflected in the NMLS.28 These components include clearly 

defined leadership, with the ability to marshal necessary resources; setting 

clear priorities and focusing resources on the greatest areas of need, as 

identified by threat and risk assessments; and established accountability 

mechanisms to provide a basis for monitoring and assessing program 

performance. We identified a number of ways in which these critical 

components could be better reflected in the development and 

implementation of the annual NMLS, should it be reauthorized. 

27As mentioned previously, in addition to Treasury, the U.S. delegation to the Financial 

Action Task Force includes representatives from the Departments of Justice and State. 

28See U.S. General Accounting Office, Combating Terrorism: Observations on National 

Strategies Related to Terrorism, GAO-03-519T (Washington D.C.: Mar. 3, 2003); Homeland 

Security: A Framework for Addressing the Nation’s Efforts, GAO-01-1158T (Washington 

D.C.: Sept. 21, 2001); International Crime Control: Sustained Executive-Level 

Coordination of Federal Response Needed, GAO-01-629 (Washington D.C.: Aug. 13, 2001); 

and Managing for Results: Next Steps to Improve the Federal Government’s Management 

and Performance, GAO-02-439T (Washington D.C.: Feb. 15, 2002). In addition, GAO 

continues to develop critical success factors for evaluating national strategies related to 

homeland security and terrorism and will report on this topic later this year. 

Page 37 GAO-03-813 Combating Money Laundering 
NMLS Leadership 

Structure Generally Has 

Not Resulted in Consensus 

on the Approach NMLS 

Should Take 

Our past work in reviewing various national strategies has consistently 

concluded that having clearly defined leadership, with the ability to 

marshal necessary resources, is a critical component of any national 

strategy. For instance, our work has noted the importance of establishing 

a focal point or executive-level structure to provide overall leadership that 

would rise above the interests of any one department or agency. Regarding 

the annual NMLS, we found that the joint Treasury-Justice leadership 

structure generally has not been able to reach consensus in developing 

and implementing the strategies—particularly in recent years when the 

structure did not include representatives from the two departments’ top 

leadership. This has resulted in an inability to reach agreement on the 

appropriate scope of the strategy and ensure that target dates for 

completing strategy initiatives were met. 

The Strategy Act required the President, acting through the Secretary of 

the Treasury and in consultation with the Attorney General, to produce an 

annual NMLS. However, Treasury and Justice officials told us that the 

Strategy Act did not provide additional funding or otherwise enhance 

either department’s ability to develop and implement the annual strategies. 

Rather, development and implementation of the annual NMLS has been 

dependent largely on consensus-building efforts between Treasury and 

Justice—with Treasury having de facto lead responsibility. In this regard, 

Treasury officials told us that, while the department could request 

participation from other agencies, it had no incentives it could use to 

marshal necessary resources or compel participation in implementing 

initiatives or action items. The Treasury officials noted, for example, that 

the department’s inability to compel action by other agencies was a 

contributing factor to delays in producing each annual NMLS. As shown in 

table 5, none of the four annual strategies issued to date was submitted to 

the Congress by February 1 of each year, as required by the Strategy Act. 

As of September 24, the 2003 strategy had yet to be submitted. 

Table 5: Annual NMLS—Dates Submitted to Congress 

Annual NMLS Required issue date Date submitted Months late 

1999 February 1999 September 1999 7 

2000 February 2000 March 2000 1 

2001 February 2001 September 2001 7 

2002 February 2002 July 2002 5 

2003 February 2003 Not yet issued More than 7 

Source: Annual NMLS. 

Page 38 GAO-03-813 Combating Money Laundering 
The initial NMLS (1999) established a joint leadership structure for 

implementing the strategy. Specifically, the strategy noted that overall 

implementation of the strategy would be guided by an interagency 

Steering Committee chaired by the Deputy Secretary of the Treasury and 

the Deputy Attorney General, with participation of relevant departments 

and agencies. The Steering Committee was to be responsible for 

overseeing action items and timelines and, as appropriate, making specific 

assignments. Also, with respect to action items that involved international 

aspects of anti-money laundering efforts, the National Security Council 

was to have a central role and was to advise the Steering Committee, as 

necessary. The 2000 NMLS also called for the Steering Committee to 

oversee implementation of initiatives, although the strategy did not 

mention a specific role for the National Security Council. 

According to Treasury officials, the Steering Committee was not 

reconvened to oversee the development and implementation of the 2001 

NMLS, in part because of the change in administrations and the timing in 

making political appointments. Instead, overall responsibility for 

developing and implementing the 2001 NMLS was assumed by two lowerlevel officials—a Treasury Deputy Assistant Secretary (Money Laundering 

and Financial Crimes) and a Justice Criminal Division Section Chief (Asset 

Forfeiture and Money Laundering). The 2002 NMLS called for Treasury 

and Justice to reconvene the Steering Committee to provide coordination 

and cooperation among all the participating departments and agencies. 

However, according to Treasury and Justice officials, the Steering 

Committee was not reestablished. Treasury and Justice officials with 

responsibility for developing the strategy and overseeing its 

implementation at those departments said the benefits of the Steering 

Committee were that it brought together the officials who were needed to 

make decisions when those below them could not agree and that it could 

hold those responsible for implementing certain priorities accountable for 

getting things done. 

Moreover, the role of the National Security Council in overseeing 

implementation of the annual NMLS remains somewhat unclear.29 On the 

one hand, the National Security Council does have a designated policy 

coordination committee responsible for overseeing antiterrorist financing 

activities, including those related to implementation of the 2002 NMLS. On 

29In response to our request, National Security Council officials declined to meet with us to 

discuss the Council’s role regarding the annual NMLS. 

Page 39 GAO-03-813 Combating Money Laundering 
the other hand, Treasury and Justice officials told us that this policy 

coordination committee has no responsibility for addressing other aspects 

of the strategy. The officials said that they were unaware of any National 

Security Council component responsible for overseeing all aspects of 

NMLS implementation. 

NMLS Initiatives Have Not 

Been Clearly Prioritized 

Annual Strategies Have 

Contained More Priorities Than 

Could Realistically Be 

Accomplished 

Our past work in reviewing various national strategies has recognized the 

importance of identifying and prioritizing issues that require the most 

immediate attention. While each NMLS (1999 through 2002) identified 

some “top” priorities, each strategy contained more priorities—of 

seemingly equal importance—than could be realistically achieved. Our 

prior strategy work also has shown that threat and risk assessments can 

be useful in establishing priorities; however, none of the money laundering 

strategies issued to date was preceded or guided by such an assessment. 

The Strategy Act called for the NMLS to include comprehensive, researchbased goals, objectives, and priorities for reducing money laundering and 

related financial crimes in the United States. The 1999 NMLS included a 

total of 66 priorities, which laid out actions to be taken by Treasury, 

Justice, and the financial regulators; the number decreased to 50 in the 

2002 NMLS (see table 1). According to Treasury officials, Treasury’s vision 

for the annual strategies was to provide Congress and the public with a 

comprehensive document identifying current and planned anti-money 

laundering (and in 2002, antiterrorist financing) initiatives. The officials 

also said that the strategies did identify some top priorities for each 

respective year and that the most important priorities generally were 

discussed in the each strategy’s executive summary. Nonetheless, the 

officials acknowledged that, in retrospect, each strategy probably 

contained more priorities than realistically could have been completed 

during the annual strategy year. 

Similarly, Justice and regulatory officials told us that the annual strategies 

generally have been too long and included too many initiatives and 

priorities to deal with in a given year. The officials noted that the strategies 

looked good on paper and contained important issues and concepts but 

served more as reference documents than strategies. The officials said that 

the annual strategies generally did not affect how their agencies set policy 

direction or aligned resources. Also, Justice officials told us that the 

strategies generally did not affect field offices or how field agents 

conducted their work. Justice and regulatory officials told us they would 

prefer a broader, more conceptual and focused strategy with fewer 

priorities and more realistic goals that could be achieved during the year. 

Page 40 GAO-03-813 Combating Money Laundering 
Threat and Risk Assessments 

Have Not Been Used to Assist 

in Establishing Priorities 

Justice officials noted that target dates for completing strategy priorities 

generally were not met, because there were too many priorities and there 

was no funding or new resources provided to implement the plan. Justice 

officials said that by focusing on too many priorities, the strategy can 

divert resources from investigations and other law enforcement activities. 

Our past work in reviewing various national strategies has shown that 

threat and risk assessments can serve to better target use of funds, set 

priorities, and avoid duplication of effort.30 For example, regarding federal 

efforts to combat terrorism, the importance of setting priorities on the 

basis of risks was highlighted in our 1998 testimony before the 

Subcommittee on National Security, International Affairs and Criminal 

Justice, House Committee on Government Reform and Oversight. Our 

statement emphasized that 

“... a critical piece of the equation in decisions about establishing and expanding programs 

to combat terrorism is an analytically sound threat and risk assessment using valid inputs 

from the intelligence community and other agencies. Threat and risk assessments could 

help the government make decisions about how to target investments in combating 

terrorism and set priorities on the basis of risk; identify program duplication, overlap, and 

gaps; and correctly size individual agencies’ levels of efforts.”31 

However, regarding the annual NMLS, none of the four strategies (1999 

through 2002) issued to date was preceded or guided by such an 

assessment. Further, in response to our inquiries, Treasury and Justice 

officials indicated that the 2003 NMLS would not be based on a formal 

assessment of threats and risks. 

Law enforcement officials generally had favorable views on the need for 

the NMLS to be driven by some consideration of a threat and risk 

assessment. Justice officials noted that money laundering investigations 

take a lot of expertise, money, and time, and that, in their view, a formal 

assessment of threats and risks would help to set NMLS priorities and 

assist law enforcement in focusing its limited resources. Justice officials 

told us that they drafted a money laundering threat assessment in late 

30U.S. General Accounting Office, Combating Terrorism: Threat and Risk Assessments 

Can Help Prioritize and Target Program Investments, GAO-NSIAD-98-74 (Washington 

D.C.: Apr. 9, 1998). 

31U.S. General Accounting Office, Combating Terrorism: Observations on Crosscutting 

Issues, GAO/T-NSIAD-98-164 (Washington D.C.: Apr. 23, 1998). 

Page 41 GAO-03-813 Combating Money Laundering 
2002 and circulated it to other law enforcement agencies.32 The officials 

planned to use the assessment as a basis for setting 2003 NMLS priorities. 

Treasury officials generally agreed with the concept of a money laundering 

threat assessment to drive priorities, but told us that the assessment 

prepared by Justice was not useful. The officials added that, in their view, 

Justice’s threat assessment mostly contained information that was already 

widely known and, thus, probably was at least implicitly considered in 

setting priorities while drafting the 2003 strategy.

33 

Accountability 

Mechanisms Have 

Recently Been Included in 

the NMLS, But None Had 

Yet Been Completed 

NMLS Initiatives to Establish 

Performance Measures Have 

Not Been Addressed or Are 

Ongoing 

Our past work in reviewing various national strategies has recognized the 

importance of establishing accountability mechanisms to assess resource 

utilization and program performance. The 2001 and 2002 strategies 

presented various initiatives designed to establish performance measures 

related to federal anti-money laundering efforts. As of July 2003, efforts 

were ongoing on many of them, while others had not been addressed. 

Another potential accountability mechanism required in the Strategy Act 

was annual reports to Congress on the effectiveness of anti-money 

laundering policies; however, Treasury has not provided such reports. 

Establishing and implementing performance measures for the NMLS 

would assist in monitoring and evaluating law enforcement and financial 

regulatory agencies’ anti-money laundering and antiterrorist financing 

efforts. The 2001 strategy was the first annual strategy to call for the 

creation of performance measures and indicators to evaluate results 

against stated goals. The 2002 NMLS continued on the work started under 

the 2001 strategy. Both strategies designated components of Treasury and 

Justice to co-lead the initiatives. As shown in table 6, the 2002 NMLS 

contained five initiatives to measure the effectiveness and results of 

federal anti-money laundering activities. As of July 2003, Treasury and 

Justice had not yet completed any of these initiatives, although efforts 

were still ongoing to complete some of them. 

32We reviewed a copy of the draft threat assessment at Justice headquarters. However, 

since the document was never finalized or published, we were not in a position to comment 

on it. 

33As mentioned previously, the 2003 strategy had not yet been issued as of September 24, 

2003. 

Page 42 GAO-03-813 Combating Money Laundering 
Table 6: Status of 2002 NMLS Initiatives Designed to Measure Performance 

Status 

2002 NMLS initiative Target date for completion Target date met? (as of July 2003)a 

Develop a “traffic light” (e.g., red, yellow, or green) To be presented in 2003 Nob Not addressed 

system for scoring progress on NMLS goals and NMLS 

providing an indication of where the strategy stands at 

a given point in time. 

Devise and implement a uniform case reporting 

system to measure the results of federal law 

enforcement agencies’ anti-money laundering efforts. 

22. 	Consider adapting the case reporting system (1) Not specified Not applicable (1) Ongoing 

used by an existing federal agency for use by 

federal law enforcement agencies. 

23. Develop recommendations for how qualitative (2) November 2002 No (2) Ongoing 

factors, such as case significance, can be 

incorporated into quantitative measures of 

success. 

Establish a standardized reporting system for Not specified Not applicable cOngoing 

Treasury and Justice to use to quantify assets 

forfeited or seized pursuant to money laundering 

investigations. 

Analyze “cost of doing criminal business” initiatives to Not specified Not applicable Ongoing 


develop a pricing model for laundering money in non-


narcotics-related cases.d


Review the costs and resources devoted to anti- December 2002 No Not addressed 

money laundering efforts. Analyze results from budget 

data requests, and work to ensure that data requests 

relating to work against terrorist financing are also 

incorporated.e 

Source: 2002 NMLS and interviews with Treasury and Justice officials. 

a

“Not addressed” indicates that Treasury and Justice took little or no action on the NMLS initiative and 

that no future action is planned. “Ongoing” indicates that Treasury and Justice had not completed the 

initiative by its target date, but that there was ongoing or planned future work related to the initiative. 

b

According to Treasury officials, the 2003 NMLS will not include the traffic light scorecard. 

c

According to Treasury officials, the department has had systems in place to measure assets forfeited 

or seized pursuant to Treasury’s money laundering investigations. EOUSA officials told us that 

Justice, EOUSA, and the U.S. Attorneys Offices—working closely with other Justice law enforcement 

agencies—have ongoing efforts to develop a reporting system to accurately measure assets forfeited 

or seized. The officials noted that developing such a system is a complicated and time-consuming 

process. Also, the officials said that future efforts to develop a standardized reporting system 

inevitably would have to include DHS. 

d

In 2001, the Customs Service’s Money Laundering Coordination Center completed a study to 

determine the percentage commission charged to launder money in narcotics cases. The study was 

to serve as a baseline for tracking changes in the commission rate over time. The 2002 NMLS also 

noted that another federal agency had conducted a study relating to the cost of doing business for 

alien smuggling. The 2002 strategy called for FinCEN to lead an effort to examine these business 

model assessments to determine if a systematic model could be constructed to apply to all types of 

money laundering cases. 

Page 43 GAO-03-813 Combating Money Laundering 
e

In 2001, the Office of Management and Budget obtained budget data from law enforcement and 

financial regulatory agency units that were involved in the prevention, investigation, or prosecution of 

money laundering. 

Generally, the purpose of the 2002 NMLS measurement initiatives was to 

provide Congress and other policymakers a basis for (1) evaluating federal 

agencies’ anti-money laundering efforts and results and 

(2) deciding how to deploy limited public resources most effectively. For 

example, the traffic-light scorecard was intended to provide information 

on the overall performance of the federal government’s efforts to combat 

money laundering and assess how well the government was executing 

each of the six goals described in the 2002 strategy (and future strategies). 

Also, the 2002 NMLS notes that the initiative to review law enforcement 

and financial regulatory costs and resources devoted to anti-money 

laundering activities was designed to permit Congress and other 

policymakers to draw informed conclusions about the effectiveness of 

those activities. 

The 2002 NMLS noted that, while deceptively easy to articulate in the 

abstract, the task of developing meaningful performance measures for 

federal agencies engaged in combating money laundering has proven to be 

quite difficult. Treasury officials also told us that (1) the 2002 strategy was 

not published until July 2002, which did not leave much time for either 

implementation or evaluation and (2) several measurement initiatives 

were put on hold pending the reorganization associated with DHS. 

Further, the officials noted that Treasury generally had no plans to report 

on performance progress (results and accomplishments) made under the 

2002 strategy. 

The 2002 strategy did provide, for the first time in an NMLS, some baseline 

facts and figures designed to help determine how well the federal 

government was succeeding in its efforts to detect, prevent, and deter 

money laundering. For example, the strategy published U.S. Sentencing 

Commission data for fiscal year 2000 regarding defendants sentenced in 

federal court for the principal offense of money laundering. The 2002 

strategy noted that the Sentencing Commission data could be tracked over 

a period of years and, thereby, serve as one measure for evaluating 

progress in combating money laundering. 

Treasury Has Not Met the The Strategy Act required that—at the time each NMLS was transmitted to 

Requirement for Annual the Congress (other than the first transmission of any such strategy)—the 

Effectiveness Reports 	 Secretary of the Treasury submit a report containing an evaluation of the 

effectiveness of policies to combat money laundering and related financial 

Page 44 GAO-03-813 Combating Money Laundering 
crimes.34 As of July 2003, Treasury had not submitted any effectiveness 

reports. Treasury officials said they did not see this as a requirement to 

submit a separate report and, in their view, the strategy itself has been 

used to report on the effectiveness of the government’s anti-money 

laundering efforts. The officials explained that the “accomplishment” 

sections that were added to the 2002 strategy were intended to meet the 

Strategy Act’s reporting requirement. 

We believe that this information does not fully meet the Strategy Act’s 

requirement, because the accomplishment sections generally provided 

descriptive information about initiatives rather than evaluations of the 

effectiveness of policies to combat money laundering and related financial 

crimes. For example, an accomplishment section in the 2002 strategy 

noted that HIFCA task forces initiated over 100 investigations in 2001, but 

the section did not address the effectiveness of the HIFCA concept or the 

task forces. 

Ways to Incorporate 

Critical Strategy 

Components into the 

NMLS 

We identified a number of ways in which the critical components for 

national strategies could be incorporated into the NMLS, should Congress 

decide to continue the requirement. To incorporate a more clearly defined 

leadership structure that has the ability to marshal resources for a 

coordinated effort against money laundering and terrorist financing, a 

high-level leadership mechanism could be reestablished or a single official 

could be designated to carry out this responsibility. The role of the 

leadership structure would be to marshal resources to ensure that the 

vision laid out in the strategy is achieved, resolve disputes between 

agencies, and ensure accountability for strategy implementation. This 

leadership mechanism would also be in a good position to evaluate annual 

progress and report such progress to Congress, as is currently required of 

Treasury. This is especially critical now that there are three principal 

departments with anti-money laundering and antiterrorist financing 

responsibilities, in addition to the federal financial regulators. 

One way to help set clear priorities and focus resources on the areas of 

greatest need would be to require that the strategy be linked to a periodic 

threat assessment. Such an assessment would outline what the lead 

agencies see as the most significant threats. This would provide a better 

3431 U.S.C. § 5341(c). 

Page 45 GAO-03-813 Combating Money Laundering 
Conclusions 

basis to draft a strategy to address these threats. Performance could be 

measured by the level of progress made in combating these threats. 

One way to improve accountability for the agencies and regulators 

following the strategy would be for the strategy to set broad policy 

objectives that leave it to the principal agencies to develop outcomeoriented performance measures that are linked to the NMLS’s goals and 

objectives. These performance measures would be reflected in the 

agencies’ annual performance plans. However, our work showed that, 

throughout its history, the NMLS has tried to specify detailed priorities for 

each objective, many of which were not accomplished or, in the case of 

the financial regulators, would have been accomplished for statutory 

reasons even without a strategy. 

The annual NMLS has had mixed results in guiding the efforts of law 

enforcement and financial regulators in the fight against money laundering 

and, more recently, terrorist financing. Through our work in reviewing 

other national strategies, we have identified critical components needed 

for successful development and implementation; but, to date, these 

components have not been well reflected in the annual NMLS. We believe 

that incorporating these critical components into the NMLS would 

improve its development and implementation. For example, the current 

NMLS leadership structure has not reached consensus on the approach 

the strategy should take or ensured that goals and objectives are met, and 

has failed to issue any of the annual strategies on time. A clearly defined 

high-level leadership structure could better ensure that resources are 

appropriately marshaled for achieving the strategy’s vision and goals. 

Also, without an assessment of threats and risks, it is difficult to determine 

what the highest-priority activities should be. Linking the strategy’s 

development to a periodic assessment of threats and risks could help set 

priorities and ensure that resources are focused on the areas of greatest 

need. Moreover, such assessments could be helpful in tracking progress 

made in combating money laundering and terrorist financing. 

Furthermore, the establishment of accountability mechanisms could help 

to provide a basis for monitoring and assessing NMLS implementation. 

One possible mechanism would be linking the relevant agencies’ 

performance plans more closely to NMLS goals and objectives. Another 

mechanism would be to ensure that periodic progress reports are 

submitted to Congress, as currently required by the Strategy Act. 

Page 46 GAO-03-813 Combating Money Laundering 
In sum, if Congress decides to reauthorize the requirement for an annual 

NMLS, adoption of these critical components in the agencies’ future 

efforts could help to resolve or mitigate the deficiencies we identified. 

If Congress reauthorizes the requirement for an annual NMLS, we 

recommend that the Secretary of the Treasury, working with the Attorney 

General and the Secretary of Homeland Security, take appropriate steps to 

Recommendations for 


Executive Action 


• 	 strengthen the leadership structure responsible for strategy development 

and implementation by establishing a mechanism that would have the 

ability to marshal resources to ensure that the strategy’s vision is achieved, 

resolve disputes between agencies, and ensure accountability for strategy 

implementation; 

• 	 link the strategy to periodic assessments of threats and risks, which 

would provide a basis for ensuring that clear priorities are established and 

focused on the areas of greatest need; and 

• 	 establish accountability mechanisms, such as (1) requiring the principal 

agencies to develop outcome-oriented performance measures that must be 

linked to the NMLS’s goals and objectives and that also must be reflected 

in the agencies’ annual performance plans and (2) providing Congress with 

periodic reports on the strategy’s results. 

Agency Comments 


and Our Evaluation 


We provided a draft of this report for review and comment to the 

Departments of the Treasury, Justice, and Homeland Security; seven 

federal financial regulatory agencies (FRB, FDIC, OCC, OTS, NCUA, SEC, 

and CFTC); and the National Security Council. 

In written comments, Treasury said that our recommendations for 

improving the process for creating the NMLS and enhancing accountability 

of all agencies with responsibility for combating financial crimes and the 

financing of terrorism are important, should Congress reauthorize the 

legislation requiring future strategies. Justice did not specifically address 

our recommendations but said that our observations and conclusions will 

be helpful in assessing the role that the strategy process has played in the 

federal government’s efforts to combat money laundering. For example, 

Justice concurred with our conclusion that linking the strategy’s 

development to a threat assessment could help set priorities and ensure 

that limited resources are focused on the areas of greatest need. DHS said 

that it would work with the Secretary of the Treasury as recommended 

Page 47 GAO-03-813 Combating Money Laundering 
and would do its part to implement necessary actions to address concerns 

raised in the report. 

Treasury, Justice, and DHS said that the lack of funds to finance NMLS 

development and implementation was an impediment and that the success 

of the HIFCA program in particular would be enhanced by an independent 

funding source. While we did not assess the participating agencies’ funding 

decisions regarding the NMLS or the HIFCA program, our report 

acknowledges that federal law enforcement agencies have resource 

constraints and competing priorities. We also note, however, that a 

primary purpose of the NMLS was to improve the coordination and quality 

of federal anti-money laundering investigations by concentrating and 

leveraging existing resources, including funding. Further, the report notes 

that HIFCA task force officials said that the lack of funding to compensate 

or reimburse participating state and local law enforcement agencies was a 

barrier to their participation. The 2002 NMLS called for an interagency 

team to examine how to fund the colocation of participants in HIFCA task 

forces absent funds appropriated for that purpose. At the time of our 

review, this initiative had not yet been completed. 

Treasury also said that it has satisfied the Strategy Act requirement that it 

submit a report to Congress—at the time the NMLS is submitted—on the 

effectiveness of policies to combat financial crimes. Treasury said that 

(1) evaluations of effectiveness have been contained in the NMLS itself 

and (2) any evaluation of effectiveness logically forms a part of the NMLS. 

While the annual strategies have contained some useful information to 

help Congress better understand programs to combat money laundering 

and terrorist financing, the strategies generally have provided descriptive 

information about NMLS initiatives rather than evaluations of the 

effectiveness of policies. As noted in our report, Treasury and Justice have 

efforts under way to measure performance that, when completed, could 

provide useful input into an overall evaluation of the effectiveness of 

policies to combat financial crimes. 

DHS highlighted the value of its Money Laundering Coordination Center, 

stating that the center has provided information to DEA, FBI, and other 

outside agencies on at least 46 occasions and that DEA was the most 

active outside agency user of the center, with at least 21 requests for 

assistance. While the sharing of relevant information is commendable, as 

mentioned in our report, DEA officials told us that the center does not 

meet DEA’s needs and that DEA has created a new database for 

information on money laundering investigations related to drugs. DHS also 

provided additional information on (1) methods used by ICE to coordinate 

Page 48 GAO-03-813 Combating Money Laundering 
terrorist financing investigations with other agencies and (2) steps taken 

by ICE and the FBI to implement the May 2003 memorandum of agreement 

between Justice and DHS regarding roles and responsibilities in 

investigating terrorist financing. 

The full text of Treasury’s, Justice’s, and DHS’s written comments are 

reprinted in appendix IV, V, and VI, respectively. The three departments 

also provided technical comments and clarifications, which have been 

incorporated in this report where appropriate. 

Of the seven federal financial regulatory agencies, four (FRB, FDIC, 

NCUA, and SEC) provided technical comments and clarifications, which 

have been incorporated in this report where appropriate. The other three 

agencies (OCC, OTS, and CFTC) had no comments. FDIC also said that, 

should a national money laundering strategy continue, annual goals should 

be achievable and roles and responsibilities clearly defined. 

The National Security Council did not respond to our request for 

comments. 

As arranged with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after its 

issue date. At that time, we will send copies of this report to interested 

congressional committees and subcommittees. We will also make copies 

available to others on request. In addition, the report will be available at 

no charge on GAO’s Web site at http://www.gao.gov. 

Page 49 GAO-03-813 Combating Money Laundering 
If you or your staffs have any questions about this report or wish to 


discuss the matter further, please contact Richard M. Stana at (202) 512-


8777 or by e-mail at stanar@gao.gov or Davi M. D’Agostino at (202) 512-


8678 or by e-mail at dagostinod@gao.gov. GAO contacts and key 


contributors to this report are listed in appendix VII. 


Richard M. Stana, Director 


Homeland Security and Justice 


Davi M. D’Agostino, Director 


Financial Markets and Community Investment 


Page 50 GAO-03-813 Combating Money Laundering 
Appendix I: Scope and Methodology 


To determine agency perspectives on the benefit of the annual National 

Money Laundering Strategy (NMLS), we interviewed responsible officials 

at and reviewed relevant documentation obtained from the principal law 

enforcement components with anti-money laundering responsibilities at 

the Departments of the Treasury, Justice, and Homeland Security and the 

federal financial regulatory agencies. To determine whether the NMLS has 

served as a useful mechanism for guiding law enforcement agencies’ 

efforts, we (1) compared the structure and operation of High Intensity 

Money Laundering and Related Financial Crime Area (HIFCA) task forces 

to guidance provided in the strategies, (2) assessed whether the 

implementation of NMLS initiatives to enhance interagency coordination 

has met strategic goals, and (3) assessed the extent to which the 2002 

NMLS addressed agency roles in combating terrorist financing. To do this, 

we interviewed responsible officials and reviewed documentation from 

the four primary agencies responsible for investigating money laundering 

and related financial crimes—Treasury’s Internal Revenue ServiceCriminal Investigation (IRS-CI), Justice’s Federal Bureau of Investigation 

(FBI) and Drug Enforcement Administration (DEA), and Homeland 

Security’s Bureau of Immigration Control and Enforcement (ICE).1

 For 

investigations of terrorist financing, we reviewed the roles and activities of 

and interviewed officials from ICE’s Operation Green Quest (OGQ) and 

two FBI components—Terrorist Financing Operations Section (TFOS) and 

Joint Terrorism Task Forces (JTTF).2

 Our work with law enforcement 

agencies was conducted at the principal federal agencies’ headquarters in 

Washington, D.C., and at field office locations in three major U.S. financial 

centers (Los Angeles, Miami, and New York City). 

To determine the role of the NMLS in influencing the anti-money 

laundering activities of federal financial regulators, we reviewed their 

efforts to carry out the NMLS 2002 goal, “Prevent Money Laundering 

Through Cooperative Public-Private Efforts and Necessary Regulatory 

Measures,” and its earlier iterations. We gathered information on these 

agencies’ anti-money laundering and antiterrorist financing efforts— 

including efforts to implement provisions of the Uniting and Strengthening 

1

Our work at ICE primarily involved the same Customs Service officials we contacted at 

Treasury before they were transferred to Homeland Security in March 2003. 

2

OGQ operated through two components—a targeting and coordination center located in 

Washington, D.C., and financial investigation groups in 20 U.S. cities. The FBI’s TFOS, also 

located in Washington, D.C., was created to provide a centralized component to conduct 

and coordinate terrorist financing investigations. The FBI’s 66 JTTFs are located 

throughout the nation to investigate and prevent acts of terrorism. 

Page 51 GAO-03-813 Combating Money Laundering 
Appendix I: Scope and Methodology 

America by Providing Appropriate Tools Required to Intercept and 

Obstruct Terrorism Act of 2001 (USA PATRIOT Act)—and determined the 

influence of the NMLS on those efforts. We also examined the role the 

financial regulators played in supporting Treasury’s efforts under the 

NMLS goal to strengthen international cooperation to fight money 

laundering. To do this work, we interviewed responsible headquarters 

officials and reviewed documentation from the Commodity Futures 

Trading Commission (CFTC), Federal Deposit Insurance Corporation 

(FDIC), Federal Reserve Board (FRB), National Credit Union 

Administration (NCUA), Office of the Comptroller of the Currency (OCC), 

Office of Thrift Supervision (OTS), Treasury, and Securities and Exchange 

Commission (SEC). We also interviewed officials from the law 

enforcement agencies listed above to assess coordination between law 

enforcement and the financial regulators. 

To compare NMLS efforts to the components we have found are necessary 

for a successful strategy, we reviewed drafts of the strategies from 1999 to 

2002, interviewed officials who had been involved in the development and 

implementation of the strategies, and compared the results from this work 

with findings from our past work reviewing national strategies and their 

implementation. 

We conducted our work from June 2002 to August 2003 in accordance 

with generally accepted government auditing standards. 

Page 52 GAO-03-813 Combating Money Laundering 
Appendix II: Legislation Has Expanded the 

Responsibility to Combat Money Laundering 

The U.S. government’s framework for preventing, detecting, and 

prosecuting money laundering has been expanded through additional 

pieces of legislation since its inception in 1970 with the Bank Secrecy Act 

(BSA).1 The BSA required, for the first time, that financial institutions 

maintain records and reports that financial regulators and law 

enforcement agencies have determined have a high degree of usefulness in 

criminal, tax, and regulatory matters. The BSA authorizes the Secretary of 

the Treasury to issue regulations on the reporting of certain currency 

transactions. The BSA had three main objectives: create an investigative 

audit trail through regulatory reporting standards; impose civil and 

criminal penalties for noncompliance; and improve detection of criminal, 

tax, and regulatory violations. 

The reporting system implemented under the BSA was by itself an 

insufficient response to money laundering because, under the BSA, 

anybody who satisfied the reporting requirements would not be subject to 

money laundering violations. Thus, Congress enacted the Money 

Laundering Control Act of 1986 (MLCA),2

 which made money laundering a 

criminal offense separate from any BSA reporting violations. It created 

criminal liability for individuals or entities that conduct monetary 

transactions knowing that the proceeds involved were obtained from 

unlawful activity and made it a criminal offense to knowingly structure 

transactions to avoid BSA reporting. Penalties under the MLCA include 

imprisonment, fines, and forfeiture. 

Congress enacted the Money Laundering Prosecution Improvements Act 

of 1988 to enhance the provisions of the BSA and the MLCA and amended 

provisions in both statutes.3

 The Improvements Act aimed to increase the 

cooperation that the government receives from financial institutions by 

imposing liability and fines on facilitators, such as negligent bankers. It 

also expanded the definition of a financial institution under the BSA and 

permitted government agencies to undertake sting operations. 

1

Currency and Foreign Transactions Reporting Act (commonly referred to as the Bank 

Secrecy Act), Pub. L. No. 91-508, 84 Stat. 1114 (1970) (codified as amended in 12 U.S.C. §§ 

1829(b), 1951-1959; 31 U.S.C. §§ 5311-5330. 

2

18 U.S.C. §§ 1956 -1957 (1994). 

3

Pub. L. No. 100-690, 102 Stat. 4354-59, 4378 (1988) (codified as amended in scattered 

sections of 12 U.S.C., 18 U.S.C. and 31 U.S.C.). 

Page 53 GAO-03-813 Combating Money Laundering 
Appendix II: Legislation Has Expanded the 

Responsibility to Combat Money Laundering 

The Annunzio-Wylie Anti-Money Laundering Act of 1992 amended the BSA 

in a number of ways.4

 It authorized Treasury to require financial 

institutions to report any suspicious transaction relevant to a possible 

violation of a law. It also authorized Treasury to require financial 

institutions to carry out anti-money laundering programs and create 

record-keeping rules relating to fund transfer transactions. AnnunzioWylie also made the operation of an illegal money transmitting business a 

crime. 

As authorized by Annunzio-Wylie, in 1996, Treasury issued a rule requiring 

that banks and other depository institutions use a Suspicious Activity 

Report (SAR) form to report activities involving possible money 

laundering. During the same year, bank regulators issued regulations 

requiring all depository institutions to report suspected money laundering 

as well as other suspicious activities using this form. The bank regulators 

also placed SAR requirements on the subsidiaries, including broker-dealer 

firms, of the depository institutions and their holding companies under 

their jurisdiction. 

The Money Laundering and Financial Crimes Strategy Act of 1998 

(Strategy Act)5

 amended the BSA to require the President, acting through 

the Secretary of the Treasury, in consultation with the Attorney General 

and other relevant agencies, including state and local agencies, to 

coordinate and implement a national strategy, produced annually for 5 

years beginning in 1999, to address money laundering. In addition, it 

requires the Secretary of the Treasury to designate certain areas as highrisk areas for money laundering and related financial crimes and to 

establish a Financial Crime-Free Communities Support Program. The 

purpose of demarcating areas as high risk is to designate the communities 

that experience severe problems with money laundering that need more 

help. The Strategy Act also authorizes federal funding of efforts by state 

and local law enforcement agencies to investigate money laundering 

activities. In 1999, Treasury consulted with 18 federal agencies, bureaus, 

and offices in developing the NMLS. By 2002, that number had increased 

to over 25. The Strategy Act provides that the NMLS should include: 

4

Pub. L. No. 102-550, 106 Stat. 4044-47 (1992) (codified as amended in scattered sections of 

12 U.S.C., 18 U.S.C., and 22 U.S.C.). 

5

31 U.S.C. §§ 5340-42, 5351-55 (1998). 

Page 54 GAO-03-813 Combating Money Laundering 
Appendix II: Legislation Has Expanded the 

Responsibility to Combat Money Laundering 

1. 	 Goals for reducing money laundering and related financial crimes in 

the United States. 

2. 	 Goals for coordinating regulatory efforts to prevent the exploitation of 

financial systems in the United States through money laundering. 

3. 	 A description of operational initiatives to improve the detection and 

prosecution of money laundering and related financial crimes and the 

seizure and forfeiture of the proceeds derived from those crimes. 

4. 	 The enhancement of partnerships between the private financial sector 

and law enforcement agencies with regard to the prevention and 

detection of money laundering and related financial crimes. 

5. 	 The enhancement of cooperative efforts between the federal 

government and state and local officials, including state and local 

prosecutors and other law enforcement officials; and cooperative 

efforts among the several states and between state and local officials, 

including state and local prosecutors and other law enforcement 

officials. 

In the wake of the September 11 terrorist attacks, Congress enacted the 

Uniting and Strengthening America by Providing Appropriate Tools 

Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) on 

October 25, 2001.

6

 The passage of the USA PATRIOT Act was prompted, in 

part, by the enhanced awareness of the importance of combating terrorist 

financing as part of the U.S. government’s overall anti-money laundering 

efforts, because terrorist financing and money laundering both involve 

similar techniques. Title III of the USA PATRIOT Act, among other things, 

expands Treasury’s authority to regulate the activities of U.S. financial 

institutions; requires the promulgation of regulations; imposes additional 

due diligence requirements; establishes new customer identification 

requirements; and requires financial institutions to maintain anti-money 

laundering programs. In addition, title III adds activities that can be 

prosecuted as money laundering crimes and increases penalties for 

activities that were money laundering crimes prior to enactment of the 

6

Pub. L. No. 107-56, 115 Stat. 272 (2001). 

Page 55 GAO-03-813 Combating Money Laundering 
Appendix II: Legislation Has Expanded the 

Responsibility to Combat Money Laundering 

USA PATRIOT Act. Further, title III amends various sections of the BSA, 

the MLCA, and other statutes. Appendix III contains a detailed summary of 

key provisions in title III of the USA PATRIOT Act. 

Page 56 GAO-03-813 Combating Money Laundering 
Appendix III: Summary of Key Anti-Money 

Laundering Provisions in Title III of the USA 

PATRIOT Act and Rules 

Due diligence 

(Section 312) 

Amends 31 U.S.C. § 5318 by requiring U.S. financial institutions to exercise due diligence and, in some cases, enhanced due diligence, when opening 

or operating correspondent accounts for foreign financial institutions or private banking accounts for wealthy foreign individuals. Also requires U.S. 

financial institutions to establish due diligence policies, procedures, and controls reasonably designed to detect and report money laundering through 

such correspondent and private banking accounts. 

Proposed rule 

Applies to: 

Financial institutions 

Issuance date: 

May 30, 2002 

Sets forth certain minimum due diligence and enhanced due diligence requirements and otherwise adopts 

a risk-based approach, permitting financial institutions to tailor their programs to their own lines of 

business, financial products and services offered, size, customer base, and location. 

Interim final rule 

Applies to: 

Financial institutions other than 

banks, securities brokers and 

dealers, futures commission 

merchants, and introducing brokers 

Effective date: 

July 23, 2002 

Defers the application of Section 312 requirements and provides interim compliance guidance pending 

issuance of a final rule. 

Shell bank ban and record keeping 

(Sections 313 and 319(b)) 

Amends 31 U.S.C. § 5318 by prohibiting U.S. banks and securities firms from opening or maintaining accounts for foreign shell banks, meaning banks 

that have no physical presence anywhere and no affiliation with another, non-shell bank. Requires closure of any existing correspondent accounts for 

foreign shell banks by December 2001. Also requires U.S. firms to take reasonable steps to ensure no foreign bank client is allowing a foreign shell 

bank to utilize the foreign bank’s U.S. correspondent account. Also requires foreign banks with U.S. correspondent accounts to identify their owners 

and designate a U.S. resident to accept legal service of a government subpoena or summons. Allows U.S. to subpoena documents related to the 

foreign bank's U.S. account whether the documents are inside or outside the U.S. Allows the Attorney General or Treasury to require closure of a 

foreign bank's U.S. account if the foreign bank ignores a government subpoena or summons. 

Final rule 

Applies to: 

Banks and securities broker-dealers 

Effective date: 

October 28, 2002 

Defines the scope of the application of the shell bank prohibition and record keeping requirement and 

provides certification form to aid covered financial institutions in complying with the rule. 

Public-private cooperation 

(Section 314) 

Enables and encourages two forms of information sharing to deter terrorism and money laundering: (1) among law enforcement, the regulators, and 

financial institutions (314(a)); and (2) among financial institutions themselves (314(b)). 

Final rule 

Applies to: 

Financial institutions and federal 

government law enforcement 

agencies 

Effective date: 

September 26, 2002 

Creates a communication network to link federal law enforcement agencies with financial institutions so 

that information relating to suspected terrorists and money launderers can be exchanged quickly and 

without compromising pending investigations. Federal law enforcement agencies can provide names of 

suspected terrorists and money launderers to financial institutions through Treasury’s Financial Crimes 

Enforcement Network (FinCEN). After receiving the information, financial institutions are required to check 

accounts and transactions involving suspects and report matches. Law enforcement agencies 

then follow up with the financial institution directly. Permits the sharing of information relating to individuals 

and entities suspected of money laundering or terrorism among financial institutions so long as financial 

institutions provide a yearly notice to FinCEN of their intent to share information under this provision. 

can 

Page 57 GAO-03-813 Combating Money Laundering 
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Laundering Provisions in Title III of the USA 

PATRIOT Act and Rules 

Commodity firms and credit unions 

(Section 321) 

Clarifies that commodity firms and credit unions are "financial institutions" subject to Title 31's anti-money laundering provisions. 

Concentration accounts 

(Section 325) 

Amends 31 U.S.C. § 5318(h) by authorizing Treasury regulations to ensure that client funds moving through a financial institution's administrative 

accounts do not move anonymously, but are marked with the client’s name. 

Customer verification 

(Section 326) 

Amends 31 U.S.C. § 5318 by requiring all U.S. financial institutions to implement procedures to verify the identity of any person seeking to open an 

account and requires all clients to comply with such procedures. Requires Treasury jointly with financial regulators to implement rules requiring 

financial institutions to comply. 

Joint final rule 

Applies to: 

Banks, savings associations, credit 

unions, private banks, and 

trust companies 

Effective date: 

June 9, 2003 

Compliance date: 

October 1, 2003 

Requires banks, savings associations, credit unions, private banks, and trust companies to implement 

procedures to verify the identity of any person seeking to open an account. 

Joint final rule 

Applies to: 

Mutual funds 

Effective date: 

June 9, 2003 

Compliance date: 

October 1, 2003 

Requires mutual funds to implement procedures to verify the identity of any person seeking to open an 

account. 

Joint final rule 

Applies to: 

Futures commission merchants 

and introducing brokers 

Effective date: 

June 9, 2003 

Compliance date: 

October 1, 2003 

Requires futures commission merchants and introducing brokers to implement procedures to verify the 

identity of any person seeking to open an account. 

Joint final rule 

Applies to: 

Broker-dealers 

Effective date: 

June 9, 2003 

Compliance date: 

October 1, 2003 

Requires broker-dealers to implement procedures to verify the identity of any person seeking to open an 

account. 

Proposed rule 

Applies to: 

Banks lacking a federal functional 

regulator 

Issuance date: 

May 9, 2003 

Requires certain banks lacking a federal functional regulator to implement procedures to verify the identity 

of any person seeking to open an account. 

Report to Congress 

Applies to: 

Financial institutions 

Issuance date: 

October 2002 

Report to Congress on ways to improve the ability of financial institutions to identify foreign nationals. 

Page 58 GAO-03-813 Combating Money Laundering 
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Laundering Provisions in Title III of the USA 

PATRIOT Act and Rules 

International cooperation 

(Section 330) 

Directs the United States to negotiate with other countries to increase anti-money laundering and terrorist financing cooperation, ensure adequate 

record keeping of transactions and accounts related to money laundering or terrorism. 

Anti-money laundering programs 

(Section 352) 

Amends 31 U.S.C. § 5318(h) to require all U.S. financial institutions to establish anti-money-laundering programs. Authorizes Treasury, after consulting 

with the appropriate federal regulators to prescribe minimum standards for these programs. 

Interim final rule 

Applies to: 

Credit card system operators 

Effective date: 

April 24, 2002 

Required operators of a credit card system to establish programs reasonably designed to detect and 

prevent money laundering and the financing of terrorism. 

Interim final rule 

Applies to: 

Money services business 

Effective date: 

April 24, 2002 

Required money services businesses to establish programs reasonably designed to prevent money 

laundering and the financing of terrorism. 

Interim final rule 

Applies to: 

Mutual funds 

Effective date: 

April 24, 2002 

Required mutual funds to establish programs reasonably designed to detect and prevent money 

laundering and the financing of terrorism. 

Proposed rule 

Applies to: 

Insurance companies 

Issuance date: 

September 26, 2002 

Would require certain insurance companies (those offering life or annuity products) to establish programs 

reasonably designed to detect and prevent money laundering and the financing of terrorism. Prescribes 

minimum anti-money laundering standards applicable to insurance companies. 

Proposed rule 

Applies to: 

Unregistered investment companies 

Issuance date: 

September 26, 2002 

Would require unregistered investment companies, such as hedge funds, commodity pools, and similar 

investment vehicles, to establish programs reasonably designed to detect and prevent money laundering 

and the financing of terrorism. 

Interim final rule 

Applies to: 

Banks, savings associations, credit 

unions, registered brokers and 

dealers in securities, futures 

commission merchants, and casinos 

Effective date: 

April 24, 2002 

Banks, savings associations, credit unions, registered brokers and dealers in securities, futures 

commission merchants, and casinos deemed in compliance with Section 352 if they establish and 

maintain anti-money laundering programs pursuant to existing BSA rules, or rules adopted by their federal 

functional regulator or self-regulatory organization. 

Page 59 GAO-03-813 Combating Money Laundering 
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Laundering Provisions in Title III of the USA 

PATRIOT Act and Rules 

Suspicious activity reporting 

(Section 356) 

Requires all U.S. securities firms to report suspicious financial activity to U.S. law enforcement under regulations to be published by July 1, 2002. 

Authorizes Treasury to issue regulations requiring suspicious activity reporting by commodity firms; and requires a report and recommendations by 

October 2002 on effective regulations applying anti-money laundering reporting and other requirements to investment companies. 

Amendment of interim final rule 

Applies to: 

Dealers in precious metals, 

pawnbrokers, loan or finance 

companies, private bankers, 

insurance companies, travel 

agencies, telegraph companies, 

sellers of vehicles, persons engaged 

in real estate closings, certain 

investment companies, commodity 

pool operators and commodity 

trading advisers 

Effective date: 

November 6, 2002 

Extends the provision that temporarily defers, for dealers in precious metals, pawnbrokers, loan or finance 

companies, private bankers, insurance companies, travel agencies, telegraph companies, sellers of 

vehicles, persons engaged in real estate closings, certain investment companies, commodity pool 

operators and commodity trading advisers, the requirement to adopt anti-money laundering programs. 

Advance notice of 

proposed rulemaking 

Applies to: 

Travel agencies 

Effective date: 

February 24, 2003 

Solicits comments on how to define travel agency and whether such persons should be required to adopt 

anti-money laundering programs under Section 352. 

Proposed rule 

Applies to: 

Dealers in precious metals, 

stones, or jewels 

Issuance date: 

February 21, 2003 

Would require dealers in precious metals, stones, or jewels to establish programs reasonably designed to 

detect and prevent money laundering and the financing of terrorism. 

Proposed rule 

Applies to: 

Investment advisers that manage 

client assets 

Issuance date: 

May 5, 2003 

Would require certain investment advisers that manage client assets to establish programs reasonably 

designed to detect and prevent money laundering and the financing of terrorism. Would delegate authority 

to examine certain investment advisers for compliance with such programs to SEC. 

Proposed rule 

Applies to: 

Commodity trading advisors 

Issuance date: 

May 5, 2003 

Would require certain commodity trading advisors to establish programs reasonably designed to detect 

and prevent money laundering and the financing of terrorism. Would delegate the authority to examine 

such commodity trading advisers to the CFTC. 

Final rule 

Applies to: 

Brokers and dealers 

Effective date: 

July 31, 2002 

Requires brokers or dealers in securities to report suspicious transactions. 

Advance notice of 

proposed rulemaking 

Applies to: 

Persons involved in real estate 

closings and settlements 

Issuance date: 

April 10, 2003 

Solicits comments on how to define persons involved in real estate closings and settlements and whether 

certain of these persons should be exempt from having anti-money laundering programs under section 

352. 

Advance notice of 

proposed rulemaking 

Applies to: 

Businesses engaged in vehicle sales 

Issuance date: 

February 24, 2003 

Solicits comments on whether businesses engaged in vehicle sales should be required to adopt antimoney laundering programs under Section 352. 

Page 60 GAO-03-813 Combating Money Laundering 
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Laundering Provisions in Title III of the USA 

PATRIOT Act and Rules 

Reporting of suspicious activities by underground banking systems 

(Section 359) 

Amends the definition of "financial institution" in 31 U.S.C.§ 5312(a)(2)(r) to include a licensed sender of money or any other person who engages as 

a business in the transmission of funds. Also directs the Secretary of the Treasury to issue a report to Congress on or before October 26, 2002, 

detailing the need for any additional legislation regarding the regulation of informal banking networks. 

Reports relating to coins and currency received in nonfinancial trade or business 

(Section 365) 

Adds new section 5331 to title 31 of the U.S. Code and requires any person who is engaged in a trade or business and who, in the course of such 

trade or business, receives more than $10,000 in coins or currency in one transaction (or two or more related transactions) to file a report with 

FinCEN. 

Money laundering designations 

(Section 311) 

Amends 31 U.S.C. § 5318 by authorizing Treasury to designate specific foreign financial institutions, jurisdictions, transactions or accounts to be of 

"primary money laundering concern." Mandates special measures to restrict or prohibit access to the U.S. market. 

Proposed rule 

Applies to: 

Futures commission merchants and 

introducing brokers in commodities 

Issuance date: 

May 5, 2003 

Would add futures commission merchants and introducing brokers in commodities to the regulatory 

definition of "financial institution'' and would require them to report suspicious transactions. 

Proposed rule 

Applies to: 

Insurance companies 

Issuance date: 

October 17, 2002 

Would require insurance companies to file suspicious activity reports. 

Proposed rule 

Applies to: 

Mutual funds 

Issuance date: 

January 21, 2003 

Would require mutual funds to file suspicious activity reports. 

Report to Congress 

Applies to: 

Investment companies 

Issuance date: 

December 31, 2002 

Report to Congress recommending additional regulations applicable to investment companies. 

Report to Congress Issuance date: 

November 22, 2002 

Report to Congress discussing informal value transfer systems and suggesting methods for minimizing 

potential abuse of such systems. 

Designation of Ukraine and Nauru as 

jurisdictions of primary money 

laundering concern 

Issuance date: 

December 20, 2002 

Interim final rule Issuance date: 

December 31, 2001 

Deems the filing of form 8300 with the Internal Revenue Service to satisfy the requirement to file a 

currency report with FinCEN. 

(2) Anti-Money Laundering Investigations, Civil and Criminal Proceedings, and Forfeitures 

Page 61 GAO-03-813 Combating Money Laundering 
Appendix III: Summary of Key Anti-Money 

Laundering Provisions in Title III of the USA 

PATRIOT Act and Rules 

Revocation of designation of Ukraine 

as jurisdiction of primary money 

laundering concern 

Effective date: 

April 17, 2003 

Proposed rule Would impose special measures against Nauru, requiring U.S. financial institutions to terminate all 

correspondent accounts involving Nauru. Issuance date: 

April 17, 2003 

Foreign corruption 

(Section 315) 

Amends 18 U.S.C. § 1956(c)(7) by expanding the list of crimes that can trigger U.S. money laundering prosecutions to include foreign corruption 

crimes such as bribery and misappropriation of funds. Also, expands the list of crimes that can trigger U.S. money laundering prosecutions to include 

weapons smuggling, export control violations, certain computer crimes, bribery, and other extraditable offenses. 

Antiterrorist forfeiture protection 

(Section 316) 

Authorizes any person whose property is confiscated as terrorist assets to contest the confiscation through civil proceedings in the United States. 

Long arm jurisdiction over foreign money launderers antiterrorist forfeiture protection 

(Section 317) 

Amends 18 U.S.C. § 1956(b) by giving U.S. courts jurisdiction over persons who commit a money laundering offense through financial transactions 

that take place in whole or in part in the United States, over foreign banks with U.S. accounts, and over foreign persons who convert to their personal 

use property that is the subject of a forfeiture order. Allows U.S. prosecutors and federal and state regulators to use court-appointed receivers in 

criminal and civil money laundering proceedings to locate and take custody of a defendant’s assets wherever located. Requires U.S. banks to respond 

within 120 hours to a request by a federal banking agency for money laundering information. 

Laundering money through a foreign bank 

(Section 318) 

Amends 18 U.S. C. § 1956(c) by prohibiting conducting a transaction involving a financial institution if the transaction involves criminally derived 

property. Explicitly includes foreign banks within the definition of "financial institution." 

Forfeiture of funds in United States interbank accounts 

(Section 319(a)) 

Amends 18 U.S.C. § 981 by closing a forfeiture loophole so that depositors’ funds in a foreign bank housing a U.S. bank account are subject to the 

same forfeiture rules as depositors’ funds in other U.S. bank accounts. 

Proceeds of foreign crimes 

(Section 320) 

Amends 18 U.S.C. § 981(a)(1)(B) to authorize the forfeiture of both the proceeds of, and any property used to facilitate, offenses listed in section 

1956(c)(7)(B), if the offense would be a felony if committed within the jurisdiction of the United States. 

Corporation represented by a fugitive 

(Section 322) 

Amends 18 U.S.C. § 2466 by applying the fugitive disentitlement doctrine to claims filed by corporations if any majority shareholder, or individual filing 

the claim on behalf of the corporation is disqualified from contesting the forfeiture. It clarifies that a natural person who is a fugitive may not file, or 

have another person file, a claim on behalf of a corporation that the fugitive controls. 

Page 62 GAO-03-813 Combating Money Laundering 
Appendix III: Summary of Key Anti-Money 

Laundering Provisions in Title III of the USA 

PATRIOT Act and Rules 

Enforcement of foreign judgments 

(Section 323) 

Amends 28 U.S.C. § 2467 by allowing the government to apply for and the court to issue a restraining order to preserve the availability of property 

subject to a foreign forfeiture or confiscation judgment. 

Consideration of anti-money laundering record 

(Section 327) 

Amends 12 U.S.C. § 1842(e) by requiring U.S. bank regulators to consider when approving a bank merger or acquisition the anti-money laundering 

records of the banks involved. 

International cooperation on identification of originators of wire transfers 

(Section 328) 

Requires Treasury to consult with the U.S. Attorney General and the Secretary of State to take all reasonable steps to encourage foreign governments 

to require the inclusion of the name of the originator in wire transfer instructions sent to the United States. 

Criminal penalties 

(Section 329) 

Any person who is an official or employee of any federal agency who, in connection with administration of the anti-money laundering provisions in the 

Patriot Act, corruptly receives anything of value in return for being influenced in the performance of any official act will be fined, or imprisoned for 15 

years, or both. 

Amendments relating to reporting of suspicious activities 

(Section 351) 

Amends 31 U.S.C. § 5318(g)(3) so that any financial institution that makes a voluntary disclosure of any possible violation of a law or regulation 

relating to money laundering is not liable to any other person for such disclosure. 

Penalties for violations of geographic targeting orders 

(Section 353) 

Amends 31 U.S.C. § 5321(a)(1), 5322, 5324(a), 5326(d). Under prior law Treasury has had the authority to issue orders requiring any domestic 

financial institution in a geographic area to perform additional record keeping and reporting requirements if reasonable grounds exist for concluding 

that additional requirements are necessary to carry out anti-money laundering requirements. These amendments expand civil and criminal penalties 

to include violations of geographic targeting orders issued and violations of regulations. 

Authorization to include suspicions of illegal activity in written employment references 

(Section 355) 

Amends 12 U.S.C. § 1828 to authorize certain depository institutions to disclose in a written employment reference information concerning a possible 

involvement in potentially unlawful activity. 

Banks secrecy provisions and activities of United States intelligence agencies to fight international terrorism 

(Section 358) 

Amends the Right to Financial Privacy Act of 1978, 12 U.S.C. § 3412(a), to allow law enforcement authorities to obtain financial data related to 

intelligence or counterintelligence activities, investigations, or analysis in an effort to protect against international terrorism. 

Page 63 GAO-03-813 Combating Money Laundering 
Appendix III: Summary of Key Anti-Money 

Laundering Provisions in Title III of the USA 

PATRIOT Act and Rules 

Increase in civil and criminal penalties for money laundering 

(Section 363) 

Amends 31 U.S.C. § 5321(a) & 5322 by increasing from $100,000 to $1,000,000 the maximum civil and criminal penalties for a violation of provisions 

added to the Bank Secrecy Act by sections 311 and 312 of the Patriot Act. 

Bulk cash smuggling 

(Section 371) 

Adds section 5332 to Title 31 of the U.S. Code, which makes smuggling large amounts of cash across U.S., borders a crime. 

Forfeiture in currency reporting cases 

(Section 372) 

Amends 31 U.S.C. § 5317(c), and allows forfeiture of undeclared cash whose source and intended use cannot be established. 

Illegal money transmitting businesses 

(Section 373) 

Amends 18 U.S.C. § 1960 -- which prohibits operation of an unlicensed money transmission business -- to abolish any requirement that the defendant 

be aware of the laws requiring money transmitting licenses. 

Counterfeiting domestic currency and 0bligations 

(Section 374) 

Amends 18 U.S.C. § 470, which prohibits the use of electronic images in counterfeiting. 

Counterfeiting foreign currency and obligations 

(Section 375) 

Amends 18 U.S.C. § 478 by providing that the penalties for counterfeiting are increased (generally to allow a maximum term of imprisonment of 20 

years). 

Laundering the proceeds of terrorism 

(Section 376) 

Amends 18 U.S.C. § 1956(c)(7)(D) which provides material support to designated foreign terrorist organizations, as a predicate offense for a money 

laundering prosecution. 

Extraterritorial jurisdiction 

(Section 377) 

Amends 18 U.S.C. § 1029. Enhances the applicability of computer fraud by covering offenses committed outside the United States that involves an 

access device issued by a U.S. entity. 

Terrorism 

(Sections 801 to 817) 

Modernizes anti-terrorism criminal statutes by, among other provisions, making it clear the crime includes bioterrorism, mass transit terrorist acts, 

cyberterrorism, harboring of terrorists and support for terrorists; that all terrorist crimes serve as predicate offenses for money laundering 

prosecutions; and that anti-money laundering provisions apply to all terrorists assets, including legally obtained funds, if intended for use in planning, 

committing or concealing a terrorist act. 

Page 64 GAO-03-813 Combating Money Laundering 
Appendix III: Summary of Key Anti-Money 

Laundering Provisions in Title III of the USA 

PATRIOT Act and Rules 

Exclusion of aliens 

(Section 1006) 

Permits the United States to exclude any alien engaged in money laundering from the United States and requires establishment of a money 

laundering watch list for officials admitting aliens into the United States. 

(3) Required Reports by Treasury 

Report and recommendation 

(Section 324) 

Requires Treasury within 30 months of enactment of the Patriot Act to make a report on operations respecting the provisions relating to international 

counter-money laundering measures and any recommendations to Congress as to advisable legislative action. 

Anti-money laundering strategy 

(Section 354) 

Amends 31 U.S.C. § 5341(b) by directing the Secretary of the Treasury to consider data regarding the funding of terrorism and efforts directed at the 

prevention, detection and prosecution of such funding as topics for the Anti-Money Laundering Strategy. 

Special report on administration of bank secrecy provisions 

(Section 357) 

Treasury must submit a report to Congress relating to the role of the IRS in the administration of the records and reports on monetary instrument 

transactions within 6 months of enactment of the Patriot Act. Report submitted on April 26, 2002. 

Efficient use of currency transaction report system 

(Section 366) 

Directs Treasury to review the cash transaction reporting system to make it more efficient, possibly by expanding the use of exemptions to reduce the 

volume of reports, and to submit a report by October 25, 2002. Report submitted on October 25, 2002. 

(4) Miscellaneous Provisions 

Use of authority of United States executive directors 

(Section 360) 

Allows Treasury to instruct the United States Executive Director of each international financial institution to use the voice and vote of the Executive 

Director to support loans and use of funds of respective institutions or public and private entities within the country if the President determines that a 

foreign country has taken actions supporting the United State's effort to combat terrorism. 

Financial crimes enforcement network 

(Section 361) 

Amends 31 U.S.C. § 310 by specifying the responsibilities of FinCEN's director, expanding the duties of FinCEN, and, giving it statutory authority to 

perform its functions. 

Establishment of highly secure network 

(Section 362) 

Directs Treasury to establish within FinCEN a highly secure electronic network through which reports (including SARs) may be filed and information 

regarding suspicious activities warranting immediate and enhanced scrutiny may be provided to financial institutions. 

Uniform protection authority for Federal Reserve facilities 

(Section 364) 

Amends 12 U.S.C. § 248 by allowing law enforcement officers to protect and safeguard Federal Reserve facilities. 

Source: GAO. 

Page 65 GAO-03-813 Combating Money Laundering 
Appendix IV: Comments from the 

Department of the Treasury 

Page 66 GAO-03-813 Combating Money Laundering 
Appendix IV: Comments from the Department 

of the Treasury 

Page 67 GAO-03-813 Combating Money Laundering 
Appendix V: Comments from the Department 

of Justice 

Page 68 GAO-03-813 Combating Money Laundering 
Appendix V: Comments from the Department of Justice 

Page 69 GAO-03-813 Combating Money Laundering 
Appendix VI: Comments from the 


Department of Homeland Security 


Page 70 GAO-03-813 Combating Money Laundering 
Appendix VI: Comments from the Department 

of Homeland Security 

Page 71 GAO-03-813 Combating Money Laundering 
Appendix VI: Comments from the Department 

of Homeland Security 

Page 72 GAO-03-813 Combating Money Laundering 
Appendix VI: Comments from the Department 

of Homeland Security 

Page 73 GAO-03-813 Combating Money Laundering 
Appendix VII: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts 	 Davi M. D’Agostino, (202) 512-8678 

Richard M. Stana, (202) 512-8777 

Acknowledgments 	 In addition to those named above, Allison Abrams, Thomas Conahan, Eric 

Erdman, Barbara Keller, Marc Molino, Jan Montgomery, Robert Rivas, 

Barbara Roesmann, and Sindy Udell made key contributions to this report. 

Page 74 GAO-03-813 Combating Money Laundering 
Related GAO Products 


Internet Gambling: An Overview of the Issues. GAO-03-89. Washington, 

D.C.: December 2, 2002. 

Interim Report on Internet Gambling. GAO-02-1101R. Washington, D.C.: 

September 23, 2002. 

Money Laundering: Extent of Money Laundering through Credit Cards 

is Unknown. GAO-02-670. Washington, D.C.: July 22, 2002. 

Money Laundering: Oversight of Suspicious Activity Reporting at BankAffiliated Broker-Dealers Ceased. GAO-01-474. Washington, D.C.: March 

22, 2001. 

Suspicious Banking Activities: Possible Money Laundering by U.S. 

Corporations Formed for Russian Entities. GAO-01-120. Washington, 

D.C.: October 31, 2000. 

Money Laundering: Observations on Private Banking and Related 

Oversight of Selected Offshore Jurisdictions. GAO/T-GGD-00-32. 

Washington, D.C.: November 9, 1999. 

Private Banking: Raul Salinas, Citibank, and Alleged Money 

Laundering. GAO/T-OSI-00-3. Washington, D.C.: November 9, 1999. 

Private Banking: Raul Salinas, Citibank, and Alleged Money Laundering. 

GAO/OSI-99-1. Washington, D.C.: October 30, 1998. 

Money Laundering: Regulatory Oversight of Offshore Private Banking 

Activities. GAO/GGD-98-154. Washington, D.C.: June 29, 1998. 

Money Laundering: FinCEN’s Law Enforcement Support Role Is 

Evolving. GAO/GGD-98-117. Washington, D.C.: June 19, 1998. 

Money Laundering: FinCEN Needs to Better Manage Bank Secrecy Act 

Civil Penalties. GAO/GGD-98-108. Washington, D.C.: June 15, 1998. 

Money Laundering: FinCEN’s Law Enforcement Support, Regulatory, 

and International Roles. GAO/T-GGD-98-83. Washington, D.C.: April 1, 

1998. 

Money Laundering: FinCEN Needs to Better Communicate Regulatory 

Priorities and Timelines. GAO/GGD-98-18. Washington, D.C.: February 6, 

1998. 

Page 75 GAO-03-813 Combating Money Laundering 
Related GAO Products 

Private Banking: Information on Private Banking and Its Vulnerability 

to Money Laundering. GAO/GGD-98-19R. Washington, D.C.: October 30, 

1997. 

Money Laundering: A Framework for Understanding U.S. Efforts 

Overseas. GAO/GGD-96-105. Washington, D.C.: May 24, 1996. 

Money Laundering: U.S. Efforts to Combat Money Laundering Overseas. 

GAO/T-GGD-96-84. Washington, D.C.: February 28, 1996. 

Money Laundering: Stakeholders View Recordkeeping Requirements for 

Cashier’s Checks As Sufficient. GAO/GGD-95-189. Washington, D.C.: July 

25, 1995. 

Money Laundering: U.S. Efforts to Fight It Are Threatened by Currency 

Smuggling. GAO/GGD-94-73, Washington, D.C.: March 9, 1994. 

Money Laundering: Characteristics of Currency Transaction Reports 

Filed in Calendar Year 1992. GAO/GGD-94-45FS. Washington, D.C.: 

November 10, 1993. 

Money Laundering: Progress Report on Treasury’s Financial Crimes 

Enforcement Network. GAO/GGD-94-30. Washington, D.C.: November 8, 

1993. 

Money Laundering: The Use of Bank Secrecy Act Reports by Law 

Enforcement Could Be Increased. GAO/T-GGD-93-31. Washington, D.C.: 

May 26, 1993. 

Money Laundering: State Efforts to Fight It Are Increasing but More 

Federal Help Is Needed. GAO/GGD-93-1. Washington, D.C.: October 15, 

1992. 

Money Laundering: Civil Penalty Referrals for Violations of the Bank 

Secrecy Act Have Declined. GAO/T-GGD-92-57. Washington, D.C.: June 

30, 1992. 

Tax Administration: Money Laundering Forms Could Be Used to Detect 

Nonfilers. GAO/T-GGD-92-56. Washington, D.C.: June 23, 1992. 

Money Laundering: Treasury Civil Case Processing of Bank Secrecy Act 

Violations. GAO/GGD-92-46. Washington, D.C.: February 6, 1992. 

Page 76 GAO-03-813 Combating Money Laundering 
Related GAO Products 

Money Laundering: The Use of Cash Transaction Reports by Federal 

Law Enforcement Agencies. GAO/GGD-91-125. Washington, D.C.: 

September 25, 1991. 

Money Laundering: The U.S. Government Is Responding to the Problem. 

GAO/NSIAD-91-130. Washington, D.C.: May 16, 1991. 

Money Laundering: Treasury’s Financial Crimes Enforcement Network. 

GAO/GGD-91-53. Washington D.C.: March 18, 1991. 

(440144/250117) 

Page 77 GAO-03-813 Combating Money Laundering 
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